The Single Most Important Factor That Determines the Profitability of a Declining

question 11

Multiple Choice

The single most important factor that determines the profitability of a declining industry is:

• A)The adjustment of capacity to shrinking demand.
• B)The capacity of firms in the industry to devise innovative strategies.
• C)The speed with which customers switch out of products supplied by the industry.
• D)The ability of firms to reduce costs through off-shoring.

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Definitions:

Weighted Cost

Refers to the cost of capital that is calculated by taking the weighted average of the costs of all sources of capital, including debt and equity.

Financing

The act of providing funds for business activities, making purchases, or investing.

Capital

Long-term assets or the money used to support long-term assets and projects. Long-term debt and equity on the balance sheet.

Profitability Index

A capital budgeting tool that measures the relationship between the present value of cash inflows and the initial investment, indicating the relative profitability of a project.