[jeff]

@h0wdyus

Incorrect

The answer is B. Comparable sales.

“The use of comparable sales is not an income approach to valuation of a business, it is a market approach. Under the comparable sales approach, the value of a business is determined by comparing it to other entities with comparable characteristics for which the value is more readily determinable.”

This was a tricky one

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[RandomAlt]

Dough Distributors has decided to increase its daily muffin purchases by 100 boxes. A box of muffins costs $2 and sells for $3 through regular stores. Any boxes not sold through regular stores are sold through Dough's thrift store for $1. Dough assigns the following probabilities to selling additional boxes:

Additional sales / Probability

60 / .6

100 / .4

What is the expected value of Dough's decision to buy 100 additional boxes of muffins?

A. $28.

B. $40.

C. $52.

D. $68.

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[stoleway]

Answer is C

If you sell 60, you will have a profit of $60 and the rest that will be sold to the thrift will generate $40 loss

Therefore total profit from selling 60 boxes is 60-40 = 20

20 x .6 = 12

If you sell 100, you will have a profit of $100 and there will be nothing left to sell to thrift stores

Total profit is $100

100 x .4 = 40

Expected value is 12 + 40 =52

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[jrosen92770]

Good luck next week Stoleway.

BEC - 5/26/2013 75
REG - 8/31/2013 82
AUD - 11/24/2013 74, 2/9/2014 92
FAR - 5/25/2014 85

NY CPA

[stoleway]

If a company strives to be the low-cost provider within the industry, this means that:

A.

if the goal is achieved, the company will earn higher profits than other companies in the industry.

B.

if the goal is achieved, buyers are not very cost sensitive.

C.

the company may underprice the competition and attract the buyers in a large enough volume in order to obtain satisfactory profits.

D.

the company has focused on decreasing value chain costs rather than controlling manufacturing cost drivers.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[RandomAlt]

@stoleway Correct

C … Although most sound somewhat correct

—- Reasoning —-

A. Low cost provider doesn't necessarily make a higher profit, they make profit through volume

B. Buyers would be cost sensitive (they are going where the prices are lower, even though there may be better service and higher prices down the street)

D. Low cost provider would focus on lowering all costs, not just value chain costs

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[h0wdyus]

Go with C.

Was out for a Walk. Missed some action here. 🙂

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[stoleway]

@jrosen92770

Thank you, my exam is actually tomorrow:)

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[stoleway]

C is correct

I was caught between A and C

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[h0wdyus]

Your exam is tomorrow. Oh Lord, bless stoleway.

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[RandomAlt]

Good luck tomorrow!!! A Sunday exam, like me.

I was thinking more about A, because I was stuck on that one as well.

I think a problem we all have is that we let our biases in on the rational. I know when I was thinking about choosing A I was thinking about Walmart. Walmart is huge and makes lots of profit. So Walmart biased me towards A. But again, if you read the question, it says ” higher profit” not higher net income (which is what I saw in my head with Walmart).

Walmart actually makes a lower profit on each item they sell, but make up for it in volume.

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[h0wdyus]

low price will attract lots of buyers was my reasoning. Further it said satisfactory profit not huge profit.

These questions are bad.. I hate these theory question. Like Russian Roulette.

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[stoleway]

Russian Roulette, very much so…hahaha. You missed it and you're dead.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[stoleway]

XYZ Company gets a $100,000 revolving credit agreement from the Last National Bank. The 10% interest is to be paid on a discount basis and XYZ is required to maintain $10,000 more in its non-interest bearing account than it ordinarily would. The effective annual interest cost is?

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[RandomAlt]

Either 11.1% or 10%, because I'm not sure how “be paid on a discount basis” factors in.

If I was going to pick an answer on the test, I would go with 11.1%

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[h0wdyus]

10% Let me know if the answer is correct

10% of 100000 =10000 (A) expense

10%of 10000 =1000 (B) earned

Amount available is 90000

(A-B)/90000 multiplied by 100 = 10%

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[Author]

Replies