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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Tora

2 months ago

Woah, this question is like a riddle wrapped in an enigma, wrapped in a toasted bagel. I'm stumped!

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Tawna

2 days ago

B) Increase market-clearing quantity.

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Annabelle

3 days ago

C) Increase price.

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Louvenia

5 days ago

C) Increase price.

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Barrett

6 days ago

B) Increase market-clearing quantity.

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Alba

13 days ago

A) Increase both price and market-clearing quantity.

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Fernanda

15 days ago

A) Increase both price and market-clearing quantity.

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Glenna

2 months ago

Haha, this is like a game of economic Tetris. I'm just going to close my eyes and pick an answer. D, let's go!

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Zita

2 months ago

Wait, wait, wait... If both demand and supply rise, won't the market-clearing quantity increase too? I'm going with B.

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Eun

1 months ago

But wouldn't it also increase price?

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Clorinda

2 months ago

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

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Julio

2 months ago

Okay, let's see... If both demand and supply go up, the price should increase, right? Gotta be C!

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Lavonna

29 days ago

Yeah, that makes sense. So the answer must be C, to increase price.

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Louvenia

1 months ago

I think you're right, an increase in both demand and supply should lead to an increase in price.

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Refugia

2 months ago

I agree with Reynalda, because when both demand and supply increase equally, it creates a balance that leads to an increase in both price and market-clearing quantity.

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