Using the Constant Growth Model, an Increase in the Required

question 35

Multiple Choice

Using the constant growth model, an increase in the required rate of return from 19 to 17% combined with an increase in the growth rate from 11 to 9% would cause the price to

• A) Fall more than 2%
• B) Fall less than 2%.
• C) Remain constant.
• D) Rise more than 2%.
• E) Rise less than 3%.

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Definitions:

Equivalent Units

A concept in cost accounting used to allocate costs to partially completed goods, converting them into an amount of fully completed units.

Conversion Activity

The process of transforming raw materials or components into finished goods or services.

Cost Per Equivalent Unit

The calculation used in process costing to allocate costs to partially completed units, giving them the same treatment as fully completed units.

Conversion Cost

The combined costs of direct labor and manufacturing overheads, which are incurred to convert raw materials into finished goods.