Acquisition of an Existing Business Is an Attractive Strategy Option

question 99

Multiple Choice

Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it:

• A) is an effective way to hurdle entry barriers,is usually quicker than trying to launch a brand-new startup operation,and allows the acquirer to move directly to the task of building a strong position in the target industry.
• B) is less expensive than launching a new startup operation,thus passing the cost-of-entry test.
• C) is a less risky way of passing the attractiveness test.
• D) is more likely to result in passing the shareholder value test,the profitability test,and the better-off test.
• E) offers the prospect of gaining an immediate competitive advantage in the new industry and thus helps ensure that the diversification move will pass the competitive advantage test for building shareholder value.

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Definitions:

Machine-Hours

A unit of measure representing the operating time of machines used in the production of goods.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products based on a specific activity base.

Manufacturing Overhead

Indirect costs related to manufacturing, such as utilities, maintenance, and salaries for managers, not directly involved in production.

Variable Manufacturing Overhead

Costs in the production process that vary with the level of output, such as utilities for machinery.