Which of the Following Types of Transfer Prices Do NOT

question 27

Multiple Choice

Which of the following types of transfer prices do NOT encourage the selling division to be efficient?

• A)transfer prices based upon market prices
• B)transfer prices based upon actual costs
• C)transfer prices based upon standard costs
• D)transfer prices based upon standard costs plus a markup for profit

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Definitions:

Discount Rate

The discount rate is the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Net Cash Inflows

The total cash receipts minus cash payments over a period of time from operational, financial, and investing activities.

Profitability Index

A financial metric that measures the return on a project or investment relative to its cost, calculated by dividing the present value of future cash flows by the initial investment cost.

Internal Rate

Typically refers to the internal rate of return (IRR), which is a financial metric used to estimate the profitability of potential investments.