Division X Makes a Part with the Following Characteristics

question 17

Multiple Choice

Division X makes a part with the following characteristics: Division Y of the same company would like to purchase 10,000 units each period from Division X. Division Y now purchases the part from an outside supplier at a price of $17 each.
-Suppose that Division X is operating at capacity and can sell all of its output to outside customers.If Division X sells the parts to Division Y at $17 per unit,the company as a whole will be:

• A)better off by $10,000 each period.
• B)worse off by $20,000 each period.
• C)worse off by $10,000 each period.
• D)There will be no change in the status of the company as a whole.

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Definitions:

Free Cash Flow

The amount of cash generated by a business after accounting for capital expenditures needed to maintain or expand the asset base.

EVA

Economic Value Added is a measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit.

Accounts Receivable

Money owed to a company by customers for products or services delivered or used but not yet paid for.

Cash Conversion Cycle

A metric that shows how long it takes for a company to convert its investments in inventory and other resources into cash flows from sales.