A Drawback of Short-Term Contracting as an Alternative to Making

question 14

Multiple Choice

A drawback of short-term contracting as an alternative to making a component in-house is that

• A) it is the most-integrated alternative to performing an activity so the principal company has no control over the agent.
• B) the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.
• C) it fails to allow a long planning period that individual market transactions provide.
• D) the buying firm cannot demand lower prices due to the lack of a competitive bidding process.

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Definitions:

NPV

A calculation technique used to estimate the value of an investment by assessing the present value of all cash flows associated with it, both incoming and outgoing.

Burnout Brand

A term referring to a brand that has lost its appeal or distinctiveness in the market, often due to overexposure, lack of innovation, or failure to maintain consumer interest.

Incremental Cash Flows

The additional operating cash flow that an organization receives from taking on a new project, distinct from the organization's existing cash flow.

Future Net Income

An estimation of a company's future earnings after all expenses and taxes have been subtracted from revenue.