Using the Constant Growth Model, an Increase in the Required

question 14

Multiple Choice

Using the constant growth model, an increase in the required rate of return from 17 to 20% combined with an increase in the growth rate from 8 to 11% would cause the price to

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

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Definitions:

Denominator Level

In cost accounting, it refers to the level of activity used to allocate fixed costs to units of production.

Standard Costing

Standard costing is an accounting method that applies estimated costs to product costs for budgeting purposes and performance evaluation, facilitating variance analysis.

Variable Overhead

Costs that fluctuate with production levels, such as utilities or materials used in the manufacturing process.

Labour Efficiency Variance

A measure of the difference between the actual hours worked and the hours that should have been worked for the level of production achieved.