AICPA Exam CPA-Business Topic 1 Question 75 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 75
Topic #: 1

[All CPA-Business Questions]

In any competitive market, an equal increase in both demand and supply can be expected to always:

AIncrease both price and market-clearing quantity.

BIncrease market-clearing quantity.

CIncrease price.

DDecrease price.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. 7.0 percent cost of funds from retained earnings.

The cost of retained earnings is equal to the rate of return required by the firm's common shareholders (or, in effect, the return 'lost' by them when the firm chooses to fund with retained earnings). While oftentimes this rate is somewhat subjective, we are given the facts to exactly answer the question in this case. The stock is currently selling for $100/share, and the dividend is given at $7/share.

$7 / $100 = 7%

Choices 'b', 'c', and 'd' are incorrect, per the above Explanation:/calculation.

by Kiley at Oct 06, 2023, 02:14 PM

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20 days ago

I think an equal increase in both demand and supply will increase both price and market-clearing quantity.

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