ABC Corp Is an Information Technology Company

question 65

Multiple Choice

ABC Corp. is an information technology company. The IT department wants to upgrade the firm's technological infrastructure but the cost of upgrading is likely to take up at least 60 percent of the firm's cash reserves. The finance manager is reluctant to release funds for this purpose. According to him, "The economy is still in a state of uncertainty. The company is better off preserving its cash reserves rather than investing it."
-Which of the following, if true, would most support the finance manager's point of view?

• A) There is a correlation between a firm's level of technological investment and its long-term growth.
• B) Gains from technology are hard to predict on account of uncertain demand.
• C) The returns from other investment opportunities are much more attractive.
• D) Recent reports suggest that the economy is yet to fully recover from the recession.
• E) Banks are hesitant to lend to the company on account of uncertain economic conditions.

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Definitions:

Cartels

Groups of independent market participants who collude to control prices and production in an industry, often illegally.

Price Leadership

A market strategy where one leading company sets the price of goods or services, and other companies in the sector follow suit.

Covert Collusion

An implicit, non-public agreement between firms to fix prices, limit production, or divide markets, without explicit communication.

Allocative Efficiency

A state of the economy where resources are allocated in a way that maximizes the overall benefit to society.