Zuppa Corporation Currently Maintains Its Own Printing Department

question 13

Multiple Choice

Zuppa Corporation currently maintains its own printing department.The annual costs of running this department are as follows: Somatic Copy Service has offered to provide Zuppa with all of its printing needs at a total annual cost of $68, 000.If Zuppa went with this offer, they would close down their printing department.Except for 30% of the fixed costs, all of the annual printing department costs above can be avoided if it was closed down.Based on this information, would Zuppa be better off to keep its printing department or to shut it down and take Somatic's offer and by how much?

• A)$4, 000 better off to go with Somatic
• B)$5, 000 better off to keep the department
• C)$20, 000 better off to keep the department
• D)$22, 000 better off to go with Somatic

---

Definitions:

Secondary Equity Offering

A financial transaction where a company offers additional shares for sale to the public after an initial public offering.

IPO Underpricing

The phenomenon where newly issued stock is priced below its market value on the initial public offering date, often leading to a first-day stock price surge.

Investment Banks

Financial institutions that provide a variety of services including underwriting, acting as intermediaries in mergers and acquisitions, and facilitating securities issuance.

Subscription Price

The price at which existing shareholders can buy more shares of stock in a rights issue before it is offered to the public.