Scenario 1-1 in Fall 2004, Sears and Kmart Announced a Merger of Merger

question 40

Multiple Choice

Scenario 1-1
In fall 2004, Sears and Kmart announced a merger of their operations. The new company, known as Sears Holdings, will be based at Sears headquarters outside Chicago. While the new company will operate both Sears and Kmart stores, "several hundred" Kmarts will be converted to Sears. The companies currently operate about 3,500 stores combined. Kmart is known for its in-store special offers which it signals with blue lights. Recently Kmart has been losing ground to industry goliath Wal-Mart Stores Inc. The Troy, Michigan based Kmart has a history stretching back more than 100 years from its start as Kresge dime stores. To compete, Kmart has introduced Super K Stores which offer thousands of name brand products for personal use, home and auto, as well as full service grocery stores. (Jackie Sindrich and Michael Erman, "No Sure Way Seen to Keep Kmart's Blue Light Shining," Reuters, AOL Online, January 4, 2002. Parija Bhatnagar and Chris Isodore, "The Kmart Sears Deal,"CNNMoney, money.cnn.com, November 17, 2004.)
-(Scenario 1-1) A brand new Super K Store sends a direct mail piece to 500 households in a radius of one mile of the new store. In the flyer, the store announces the opening of its grocery department and offers several incentive specials including a free gallon of milk, a free loaf of bread and a dozen eggs to entice these potential customers to visit the store. This direct mail piece:

• A) is paid for, mass mediated, and an attempt to persuade; therefore, it should be considered advertising.
• B) is paid for and an attempt to persuade; however, it is only locally mediated and therefore cannot be considered advertising.
• C) is not received by a large enough number of people to be considered advertising.
• D) must be part of a larger campaign to be considered advertising.

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Definitions:

Cash-flow Problems

Financial issues arising from an imbalance between the cash entering and exiting a business, potentially impairing its operations.

Bankruptcy

A legal proceeding involving a person or business that is unable to repay outstanding debts. The process begins with a petition filed by the debtor, which is most common.

Financial Management

The strategic planning, organizing, directing, and controlling of financial activities such as procurement and utilization of funds to achieve organizational goals.

Cash Flows

The total amount of money being transferred into and out of a business, often analyzed for evaluating the liquidity, flexibility, and overall financial health of the entity.