AICPA CPA-Business Exam - Topic 2 Question 87 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 87
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:

AMarket concentration.

BEntry barriers.

CExclusionary practices.

DCollusion.

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 Meghan at May 12, 2024, 11:15 AM

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Gwenn

3 months ago

I thought collusion was the main issue here, not patents.

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Ashton

3 months ago

Wait, are patents really just about protecting ideas?

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Irving

3 months ago

Totally agree, they create exclusionary practices!

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Emilio

4 months ago

I think they're more about entry barriers.

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Lawrence

4 months ago

Patents definitely encourage R&D investment.

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Glory

4 months ago

I thought collusion was more about companies working together, not about patents. This is tricky!

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Candra

4 months ago

I practiced a question about market concentration and patents, but I feel like entry barriers make more sense here.

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Moon

4 months ago

I'm not entirely sure, but I remember something about exclusionary practices being linked to patents. Could that be right?

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Reid

5 months ago

I think patents might relate to entry barriers since they prevent others from making the same product for a while.

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Leonor

5 months ago

I'm a bit confused by this question. The options don't seem to directly match the explanation about patents encouraging R&D. I'll have to re-read the question and think about how patents relate to market competition. Hopefully I can eliminate a couple options and make an educated guess.

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Franklyn

5 months ago

Okay, let me see. Patents are meant to incentivize R&D, so I think the right answer has to be something about encouraging investment in new products. I'm leaning towards B, "entry barriers," since that seems to capture the idea of protecting the firm's position in the market.

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Janna

5 months ago

Hmm, I'm not totally sure about this one. I know patents have something to do with encouraging new products, but I'm not sure if that's the same as "entry barriers." I'll have to think this through carefully.

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Taryn

5 months ago

This seems like a straightforward question about the purpose of patents. I'm pretty confident I know the answer - patents are a way to encourage innovation by giving firms a temporary monopoly.

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Marsha

5 months ago

Hmm, this seems straightforward. I think I'll go with option B and install the Connected Machine agent on the on-premises computers.

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Arlene

5 months ago

Ugh, I'm drawing a blank on this one. I'll have to come back to it and see if I can eliminate some of the options.

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Amber

5 months ago

Hmm, I'm a little unsure about this one. The question is asking about who is responsible for coding patient charts, but I'm not totally clear on the differences between the roles listed. I'll have to think this through carefully.

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