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Use the Following Information to Answer Questions That Refer to the Jewel

question 199

Multiple Choice

Use the following information to answer questions that refer to the Jewel Craft case. Jewel Craft, Inc. is a leading producer in the United States women's costume jewelry and accessories market. Its brands are well known and are sold by department stores and better women's stores. Several stores in a city may carry Jewel Craft's brands because most of Jewel Craft's customers will not consider any other brand.
Jewel Craft's sales force calls on one wholesaler in each state. Gemco, Inc., of Boston, Massachusetts, is the Jewel Craft distributor in that state. Gemco stocks and sells women's accessories (noncompeting lines) for several manufacturers like Jewel Craft. Wholesalers are allowed a 20 percent markup by Jewel Craft--but pay the freight charges to their warehouses. Jewel Craft's policy of using one wholesaler per state comes from its desire to control its distribution. Jewel Craft uses national magazine advertising and also supports a cooperative ad program with retailers.
Jewel Craft's prices allow for a 40 percent retail markup--an attractive percent when one considers that Jewel Craft's products require little in-store selling because of their well-established reputation.
Recently, Jewel Craft was approached by a watch producer with the idea of expanding to watches under the Jewel Craft name. It was argued that although national watch sales have leveled off, Jewel Craft could enjoy growing sales for several years because of the fine reputation the company has achieved. If watches are added, Jewel Craft will use its present policies regarding distribution, pricing, and advertising. Further, it will offer the wholesalers and retailers an attractive "package" deal as an incentive to carry Jewel Craft watches. Intermediaries will be required to carry the watches if they wish to handle the jewelry and accessories.
If Jewel Craft adds the watch line, which federal law might be most directly violated if it carries out its plan to require intermediaries to handle BOTH the watches and the jewelry?

Definitions:

Best Efforts Underwriting

A type of underwriting where the underwriter agrees to sell as much of the offering as possible, but does not guarantee the sale of the entire issue.

Flotation Costs

Costs associated with the issuance of new securities by a firm, including charges for underwriting, legal services, and registration.

Gross Spread

The difference between the underwriting price received by the issuer of securities and the price at which the securities are sold to the public.

Oversubscription Privilege

A right given to current shareholders to purchase more shares of a new issue before it is offered to the public, usually at a discount.