Which of the Following Is an Advantage to Buying an Existing

question 25

Multiple Choice

Which of the following is an advantage to buying an existing business?

• A) The physical facilities (the building and equipment) and product line may be old and obsolete.
• B) As a buyer, you inherit any ill will that may exist toward the established firm among customers or suppliers.
• C) Established business has a proven location.
• D) The inventory may contain a large amount of "dead" stock.

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Definitions:

Fixed Expenses

Costs that do not change in total despite changes in the level of business activity or production volume, such as rent or salaries.

Target Net Profit

A financial objective set by a business indicating the desired bottom-line income after all expenses, interest, and taxes have been deducted from total revenues.

Degree of Operating Leverage

A measure of how much a company's operating income changes in response to a change in sales volume, indicating the level of fixed versus variable costs.

Contribution Margin

The amount remaining from sales revenue after all variable expenses have been deducted, indicating the ability to cover fixed costs and generate profit.