Setting Prices by Adding a "Reasonable" Markup to a Firm's

question 255

Multiple Choice

Setting prices by adding a "reasonable" markup to a firm's average cost is called:

• A)break-even pricing.
• B)add-on pricing.
• C)target-return pricing.
• D)average-cost pricing.
• E)marginal analysis.

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Definitions:

Cost of Equity

The return a company theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital.

Annual Dividend

The total dividend payment a company makes to its shareholders in a single year.

Dividends

Payments made by a corporation to its shareholder members, distributing a portion of the company's earnings.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements and can be seen as the opportunity cost of investing capital elsewhere.