The Ability to Exit a Business Relatively Easily

question 81

Multiple Choice

The ability to exit a business relatively easily

• A)tends to limit the intensity of competition in the industry.
• B)increases the threat posed by a new entry.
• C)makes it difficult for an entrepreneur to recoup the initial investment.
• D)encourages entrepreneurs to use predatory pricing in order to survive.

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Definitions:

Flotation Costs

The expenses incurred by a company in issuing new securities, including underwriting, legal, and registration fees.

Cost of Equity

The theoretical compensation a company pays to its equity investors for the risk involved in investing in the firm.

Beta

A measure of the volatility, or systematic risk, of a security or portfolio compared to the market as a whole.

Stock Price

The cost of purchasing a share of a company's stock on the stock market.