Answer the Following Question(s)using the Information Below

question 108

Multiple Choice

Answer the following question(s) using the information below.
Beta Shoe Ltd.manufactures only one type of shoe and has two divisions,the Sole Division,and the Assembly Division.The Sole Division manufactures soles for the Assembly Division,which completes the shoe and sells it to retailers.The Sole Division "sells" soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory. ) The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units.The fixed costs for the Assembly Division are assumed to be $7 per pair at 100,000 units.
Sole's costs per pair of soles are:
Assembly's costs per completed pair of shoes are:

-Assume the transfer price for a pair of soles is 180% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division.The Sole Division's operating income is

• A)$320,000.
• B)$360,000.
• C)$248,000.
• D)$440,000.
• E)$400,000.

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Definitions:

Security Market Line (SML)

Positively sloped straight line displaying the relationship between expected return and beta.

Arbitrage Pricing Theory (APT)

An equilibrium asset pricing theory that is derived from a factor model by using diversification and arbitrage. It shows that the expected return on any risky asset is a linear combination of various factors.

Arbitrage Pricing Theory (APT)

A financial model that estimates the price of assets based on the relationship between their expected return and macroeconomic factors that influence all assets' returns.

Market Risk Premium

The surplus return an investor aspires to earn by holding onto a market portfolio fraught with risks as compared to safeguarded, risk-free assets.