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AICPA Exam CPA-Business Topic 2 Question 87 Discussion
Actual exam question for
AICPA's
CPA-Business exam
Question #: 87
Topic #: 2
[All CPA-Business Questions]
Topic #: 2
Patents are granted in order to encourage firms to invest in the research and development of new products. Patents are an example of:
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.
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