Price negotiations-cost reduction


Question1. Developing meaningful cost allocation rates helps managers to make good judgments regarding?

A) Price negotiations
B) Service profitability
C) Cost reduction
D) All of the above

Question2. Bay Pines Medical Centre estimates that a capitates population of 50,000 would utilize 440 inpatient days per 1,000 enrolees at an average cost of $1,374 per day. Assume that, in addition to medical costs Dixie allocates 10% of the total premium for administrative and reserve costs. What is the PMPM rate that Bay Pines must set to cover medical costs plus administrative and reserve expenses?

A) $55.98
B) $54.30
C) $114.50
D) $36.66

Question3. The price of a stock is $100 per share. Annual dividends are paid at the end of each year forever; the 1st dividend is $K and the expected growth rate for the dividends is 2% per year. The annual effective interest rate is 5%. Calculate K.

Question4. A man owns two bonds that are identical in every way except one has 3 years left to maturity and one has 10 years left to maturity. If there is a change in market interest rates which bonds market price will change the most.

a) The market price of the bond with 3 years to maturity will change the most
b) The market price of the bond with 10 years to maturity will change the most
c) Both bonds market prices will change by the same amount

Question6. A firm has determined its cost of each source of capital and optimal capital structure which is composed of the following sources and target market value proportions. ----------------------------------------------------- Of Capital Target Market Proportions After tax Cost long term debt 35% 9%
Preferred Stock 10 14
Common Stock Equity 55 20

Question7. The firm is considering an investment opportunity, which has an internal rate of return of 10 percent. The Project

a) Should not be considered because its internal rate of return is less that the cost of long term debt
b) Should be considered because its internal rate of return is less that the cost of long term debt
c) Should not be considered because its internal rate of return is greater that the weighted average cost of capital
d) Should be considered because it’s internal rate of is greater that the weighted average cost of capital

Question8. At the quarterly meeting of an oil corporation held on September 10th, the directors declared a $1.00 per share dividend for the firm's 100,000 shares of common stock outstanding. The net effect of declaring and paying this dividend would be to

a) Decrease cash by $100,000 and increase stockholders equity by $100,000
b) Decrease cash by $100,000 and decrease stockholders equity by $100,000
c) Increase cash by $100,000 and increase stockholders equity by $100,000
d) Increase cash by $100,000 and decrease stockholders equity by $100,000

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