An Investor Is Considering in Which of Two Start-Up Companies

question 105

Multiple Choice

An investor is considering in which of two start-up companies she should invest. The investor has faith in the industrial organizational model of above-average returns, and she is using its concepts to make her decision. Both start-up companies propose to manufacture health-focused foods with such characteristics as low salt, low sugar, high fiber, and no artificial additives. RexRich Foods has a business strategy of producing a differentiated product for which consumers will pay more. Green Pastures Foods is in the health-foods industry because of its internal culture and commitment to healthful lifestyles. Which firm will the investor feel is most consistent with the model of industrial organization?

• A) Green Pastures Foods
• B) RexRich Foods
• C) Both firms are consistent with the I/O approach.
• D) At the entrepreneurial stage, the model which companies follow is not important.

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Definitions:

Net Income

The total profit of a company after deducting all expenses, taxes, and costs from its total revenue.

Profitability Ratios

Financial metrics that assess a firm's ability to generate profit relative to its revenue, assets, equity, or other financial metrics over a specified period.

Average Common Stockholders' Equity

The average equity stake held by common shareholders within a company, assessed over a specific period.

Net Income

Profit remaining after all operating expenses, interest, taxes, and dividends have been deducted from total revenue.