Which of the Following Is a Disadvantage of a Firm

question 73

Multiple Choice

Which of the following is a disadvantage of a firm that enters long-term alliances?

• A) It may lose the ability to realize economies of scale.
• B) It does not have the authority to terminate the alliance if partners fail to perform.
• C) It loses the capability to capture the benefits of vertical integration.
• D) It may limit its strategic flexibility by the commitments it makes to its alliance partners.
• E) It risks losing opportunities to build on its skills and capabilities.

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Definitions:

WACC Calculation

The process of calculating the Weighted Average Cost of Capital, which measures a firm's cost of capital from all sources, weighted according to the proportion of each capital component.

Annual Coupons

The interest payments made to bondholders annually over the life of the bond.

Capital Structure

The composition of a company's liabilities and equity, outlining how a business finances its overall operations and growth.

Component Costs

The various expenses that make up the total cost of financing for a company, including the cost of debt and equity.