Use the Information Below to Answer the Following Question(s)

question 182

Multiple Choice

Use the information below to answer the following question(s) :
Darren Company has three product lines: D, E, and F. The following information is available:

-Darren Company is thinking of dropping product line F because it is reporting an operating loss. All fixed costs are unavoidable. Assuming Darren Company drops line F and is able to double the production and sales of product line E without increasing fixed costs. What affect will this have on operating income?

• A) Decrease $20,000
• B) Increase $20,000
• C) Decrease $3,000
• D) Increase $3,000

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Definitions:

Risk Premium

The extra amount of return demanded by investors for taking on a higher level of risk.

Volatility

A statistical measure of the dispersion of returns for a given security or market index, often used to gauge the risk involved in investing in that security or market.

Average Rate

is the mean interest rate in a range of rates, or the mean return of a portfolio of assets calculated over a specific period of time.

Semi-strong Form Efficiency

A concept in finance that suggests all public information is already accounted for in stock prices, thus making it impossible to consistently achieve higher returns through analysis of publicly available information.