A Combination Between Which Two of the Following Firms Is

question 106

Multiple Choice

A combination between which two of the following firms is most apt to reduce each firm's financial risk exposure?

• A) citrus grower with another citrus grower
• B) oil producer with another oil producer
• C) clothing manufacturer with a cotton farmer
• D) cereal maker with a cotton farmer
• E) a shirt manufacturer with a pants manufacturer

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Definitions:

Yield

The income return on an investment, such as the interest or dividends received, often expressed as an annual percentage based on the investment’s cost, current market value, or face value.

CAPM Approach

The Capital Asset Pricing Model, a formula used to determine the expected return on investment (ROI) by correlating the risk and expected return.

Cost of Equity

The return that shareholders require or expect to earn on their investment in the company, considered as the company's cost of retaining and using equity capital.

CGT

Capital Gains Tax, which is a tax on the profit realized on the sale of a non-inventory asset.