Budgeting for Promotion Expenditures by Computing a Percentage of Past

question 274

Multiple Choice

Budgeting for promotion expenditures by computing a percentage of past or expected sales:

• A) is the most common method of setting the promotion budget.
• B) is a complex method of budgeting.
• C) will increase promotional expenditures when business is poor.
• D) is especially suitable for new products.
• E) None of these alternatives is correct.

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Definitions:

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements; it represents the compensation the market demands in exchange for owning the asset and bearing the risk of ownership.

Capital Structure

The composition of a company’s debt and equity used to finance its overall operations and growth.

Market Risk Premium

The additional return an investor requires from a market portfolio over the risk-free rate, compensating for the risk of the investment.

Financial Leverage

The use of borrowed funds to increase the potential return on an investment.