AICPA Exam CPA-Business Topic 2 Question 71 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 71
Topic #: 2

[All CPA-Business Questions]

A basic determinant of the elasticity of demand for a normal good is the:

ALength of time producers have to respond to market changes.

BNumber of substitutes available for the product.

CNumber of sellers of the product.

DNumber of complements available for the product.

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 Whitley at Jul 05, 2023, 02:42 AM

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Samira

1 days ago

I agree with Lorrie, more substitutes means higher elasticity of demand.

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Lorrie

3 days ago

I think the answer is B) Number of substitutes available for the product.

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