Operating Synergy Consists of Economies of Scale and Scope

question 33

True/False

Operating synergy consists of economies of scale and scope. Economies of scale refer to the spreading of variable costs over increasing production levels, while economies of scope refer to the use of a specific asset to produce multiple related products or services.

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Definitions:

Projected Cash Flows

Estimates of the amount of money expected to flow in and out of a business over a future period.

Time Value of Money

The principle that a dollar received today is worth more than a dollar received in the future, due to its potential earning capacity.

Hurdle Rate

The minimum acceptable rate of return on an investment that a manager or investor expects to achieve.