Once a Firm Buys Its Supplier in Order to Vertically

question 46

Multiple Choice

Once a firm buys its supplier in order to vertically integrate a process,

• A)the lack of a market removes the high-powered incentive of market forces to keep costs low.
• B)costs are certainly lower because the firm now knows what profit the supplier was making.
• C)the supplier will now offer a better service, since it's owned by its customer.
• D)it can close the purchasing department and save costs.

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Definitions:

Accounts Payable

Short-term liabilities of a company for goods and services received from others but not yet paid for.

Du Pont Identity

A framework for analyzing a company's return on equity (ROE) by breaking it into three key components: profit margin, asset turnover, and financial leverage.

Equity Multiplier

A financial ratio indicating the portion of a company’s assets that are financed by stockholder's equity.