Question 1

An acquisition takes place when
A) two firms who previously have been buyer and seller merge.
B) two firms join together to form a new entity.
C) one firm consolidates with another.
D) one firm simply buys another.
E) management adopts a defence to make its firm less attractive.

Accepted Answer

An acquisition takes place when one firm simply buys another. This is different from a merger, which is when two firms join together to form a new entity. Consolidation is also a form of merger. A firm adopting a defense strategy to make itself less attractive is not an acquisition.

Question 2

If Shirley's Subs Inc. purchased Tony's Car Repair Inc., this would be ________.
A) a horizontal merger
B) a conglomerate merger
C) a spinoff
D) a vertical merger
E) a divestiture

Accepted Answer

This would be a conglomerate merger because Shirley's Subs Inc. and Tony's Car Repair Inc. operate in different industries, and a conglomerate merger involves companies from unrelated business activities merging.

Question 3

PepsiCo created a new corporation called Tricon Global Restaurants (now called Yum! Brands Inc.) which included Pizza Hut, KFC, and Taco Bell. This is an example of a(n)
A) hostile takeover.
B) acquisition.
C) spinoff.
D) merger.
E) divestiture.

Accepted Answer

This is an example of a spinoff, where PepsiCo created a new independent company (Tricon Global Restaurants, now Yum! Brands Inc.) that included Pizza Hut, KFC, and Taco Bell, separating these businesses from its core beverage operations.

Question 4

When Molson merged with Adolph Coors, this was an example of
A) a reverse merger.
B) a conglomerate merger.
C) a vertical merger.
D) a poison pill.
E) a horizontal merger.

Accepted Answer

The merger between Molson and Adolph Coors was a horizontal merger, as both companies were operating in the same industry and producing similar products (beer).

Question 5

In the past, only India's elite could afford to buy a car. But recent dramatic changes in India's economy have produced a growing middle class and rapidly rising incomes. Now, to meet the new demand, established automakers are introducing smaller, more affordable vehicles into India. But they will have to find a way to compete with India's Tata Motors, which has unveiled the least expensive car ever in this market, the Tata Nano. The Nano sells for only 100 000 rupees (about US$2200). It seats four passengers, gets 50 miles per gallon, and travels at a top speed of 60 miles per hour. Based on the information above, Tata most likely believed that as a result of recent changes in India's economy, what would be true of a growing number of Indian consumers?
A) They had become even more cost-conscious than ever before.
B) They would be willing and able to spend 100 000 rupees on a car.
C) They would choose a vehicle with high fuel efficiency primarily because of concern about the natural environment.
D) They will eventually prefer models similar to those currently available in the United States and Europe.
E) They will place a higher value on car safety than fuel economy.

Accepted Answer

Tata Motors' introduction of the Tata Nano, priced at 100,000 rupees, indicates the company's belief that a growing number of Indian consumers, due to rising incomes and the expansion of the middle class, would be willing and able to spend that amount on a car.

Question 6

BSX Inc. gave shareholders the right to purchase company stock at a 50 percent discount if a group without approval of BSX's board of directors acquired more than 20 percent of the company's shares. This is an example of
A) a stock buyback.
B) a conglomerate merger.
C) greenmail.
D) a poison pill.
E) a vertical merger.

Accepted Answer

This is an example of a poison pill, which is a defense mechanism used by companies to deter hostile takeovers. In this case, BSX Inc. gave shareholders the right to purchase company stock at a discounted price, making it more expensive for the hostile group to acquire the necessary shares to gain control of the company.

Question 7

Marquand says: Information technology has had its biggest impact on business in communication and access to data. With the networking and streamlined communication modalities now available to businesses, businesses can collaborate with each other as well as within a business at different locations with the greatest of ease. Businesses also have access to a greater range of information and at a greater speed than ever before. And with this information being constantly updated, businesses now have the ability to plan in response to market conditions with much greater efficiency than before. Stevenson responds: Information is important, but what's most important is how that information is used. And there is no more direct way that information technology has helped businesses than the ability to sell directly. Selling online has opened up entirely new markets that allow businesses to make greater profits, with greater efficiency, than ever before. Many businesses, such as Amazon, have been able to use online selling exclusively to dramatic effect: without having to spend money on bricks-and-mortar storefronts, they can make billions in profits selling products at low prices.
Which of the following is at issue between Marquand and Stevenson?
A) Whether online selling is an important factor in business today
B) Whether information technology has made a significant difference to businesses
C) Whether doing business is significantly helped by online communications
D) What the most important effect of information technology has been on business
E) What has changed in business since the advent of the latest information technology

Accepted Answer

Marquand believes that the biggest impact of information technology on business is in communication and access to data, while Stevenson argues that the most direct impact is the ability to sell directly. Therefore, they are debating what the most important effect of information technology has been on business.

Question 8

Flavour Foods runs The Hungry Cow, a chain of fast food restaurants located all over the country. The chain has a loyal customer base and is well-known for its signature dishes like the Big Bite Burger, Springy Fries, and the Orange Float. The company is faced with a critical decision: Should it expand its operations into China? Which of the following, if true, would strengthen the argument for competing in the Chinese market?
A) Changes in exchange rates can affect the value of sales made in different countries.
B) Even global brands typically choose to tailor their offerings according to the tastes of consumers in different countries.
C) The Big Bite Burger has a higher selling price than other items on The Hungry Cow's menu, but it is not the most profitable item because of the cost of its ingredients.
D) The Hungry Cow's research indicates that reaching new customers in domestic markets will be more expensive than doing so in emerging markets.
E) Chinese companies tend not to pursue the franchise option when attempting to expand into other countries.

Accepted Answer

The argument for expanding into the Chinese market is strengthened by the fact that reaching new customers domestically is more expensive than in emerging markets, suggesting a cost-effective opportunity for growth in China.

Question 9

If Toyota Motors purchased Ruscombe Muffler, a small retail muffler business, the purchase would be
A) a horizontal merger.
B) a conglomerate merger.
C) a spinoff.
D) a vertical merger.
E) a divestiture.

Accepted Answer

A vertical merger occurs when a company acquires a business that is a supplier or distributor of its products or services. In this case, Ruscombe Muffler is a retail business that supplies mufflers that could be used in Toyota vehicles, making it a vertical merger.

Question 10

Stone Inc. has just been through a friendly takeover. This means that
A) these two firms are in a completely unrelated businesses merge.
B) two firms agree to join together.
C) the acquired company welcomes the acquisition because it may need cash or other benefits which it believes will be available from the other firm.
D) the organization will buy back their own stock from an investor who threatened a hostile takeover.
E) the two firms were direct competitors before the merger and now will not compete with each other after the merger.

Accepted Answer

A friendly takeover occurs when the acquired company agrees to the acquisition, often because it sees potential benefits such as financial support or strategic advantages.

Question 11

The economy in the African nation Sponeto has been stagnant for a long time. The government and central bank of Sponeto have been considering options for what can be done to help stimulate investment and growth in the economy. Many in the Sponeto government agree that increasing the money supply to the nation's economy would be of significant help to the country. The national bank's reserve, however, is short on the funds needed, and suggests asking for them from the International Monetary Fund (IMF). Which of the following, if true, would strengthen the case for this course of action?
A) The IMF has been known to force donor countries to drop tariffs put in place to protect domestic industries.
B) The IMF has been known to force donor countries to privatize national companies.
C) The IMF contributes money as well as financial advice to help countries with economies suffering from balance-of-payment problems.
D) IMF loans typically come with many conditions attached that may result in increased poverty in the donor country.
E) A number of developing countries have suffered financial disasters from following IMF advice.

Accepted Answer

Option C provides a direct and positive argument for seeking funds from the IMF, as it suggests that the organization not only provides financial aid but also advice to help countries with balance-of-payment problems. This reinforces the idea that seeking funds from the IMF would be a good course of action for Sponeto. The other options either provide negative aspects associated with IMF loans or focus on potential negative consequences of working with the IMF, which weaken the case for seeking funds from the organization.

Question 12

Flavour Foods runs The Hungry Cow, a chain of fast food restaurants located all over the country. The chain has a loyal customer base and is well-known for its signature dishes like the Big Bite Burger, Springy Fries, and the Orange Float. The company is faced with a critical decision: Should it expand its operations into China? Which of the following, if true, would weaken the argument for competing in the Chinese market?
A) An American fast food chain found that the time to recoup its investments in China was greater under the franchise model as opposed to the corporate chain store model.
B) Chinese government policies can impose lengthy delays on businesses seeking food sale licenses.
C) Studies show that modern Chinese consumers are more likely than previous generations to dine outside the home.
D) When choosing a restaurant, Chinese consumers seek benefits beyond simple food quality.
E) Expanding into every market within China would require more resources than The Hungry Cow has at its disposal.

Accepted Answer

Lengthy delays in obtaining food sale licenses due to Chinese government policies could hinder the company's ability to start operations promptly, thereby weakening the argument for expanding into the Chinese market.

Question 13

Marquand says: Information technology has had its biggest impact on business in communication and access to data. With the networking and streamlined communication modalities now available to businesses, businesses can collaborate with each other as well as within a business at different locations with the greatest of ease. Businesses also have access to a greater range of information and at a greater speed than ever before. And with this information being constantly updated, businesses now have the ability to plan in response to market conditions with much greater efficiency than before. Stevenson responds: Information is important, but what's most important is how that information is used. And there is no more direct way that information technology has helped businesses than the ability to sell directly. Selling online has opened up entirely new markets that allow businesses to make greater profits, with greater efficiency, than ever before. Many businesses, such as Amazon, have been able to use online selling exclusively to dramatic effect: without having to spend money on bricks-and-mortar storefronts, they can make billions in profits selling products at low prices.
Which of the following, if true, would best support Marquand's position?
A) Having information to help it plan gives a business the greatest competitive edge.
B) Information technology has given consumers more choices than ever before.
C) The majority of consumers make at least one online purchase per month.
D) Information technology has greatly increased the choices available to consumers.
E) Most businesses are motivated to take advantage of the latest information technology.

Accepted Answer

This best supports Marquand's argument that the ability to access data and plan accordingly gives businesses a competitive edge.

Question 14

Marquand says: Information technology has had its biggest impact on business in communication and access to data. With the networking and streamlined communication modalities now available to businesses, businesses can collaborate with each other as well as within a business at different locations with the greatest of ease. Businesses also have access to a greater range of information and at a greater speed than ever before. And with this information being constantly updated, businesses now have the ability to plan in response to market conditions with much greater efficiency than before. Stevenson responds: Information is important, but what's most important is how that information is used. And there is no more direct way that information technology has helped businesses than the ability to sell directly. Selling online has opened up entirely new markets that allow businesses to make greater profits, with greater efficiency, than ever before. Many businesses, such as Amazon, have been able to use online selling exclusively to dramatic effect: without having to spend money on bricks-and-mortar storefronts, they can make billions in profits selling products at low prices.
Which of the following, if true, would best support Stevenson's position?
A) In general, the more that information technology is used by businesses, the better they perform.
B) Businesses that exclusively sell online have been the fastest-growing.
C) The most successful businesses are those that make use of information technology.
D) Many more businesses sell their products over the Internet now than in the past.
E) Easily packaged imperishable consumer goods are those that are best suited to being sold over the Internet.

Accepted Answer

Stevenson's argument is that the ability to sell online has had the biggest impact on businesses, and that businesses can make greater profits with greater efficiency by selling online. Option B directly supports this argument by stating that businesses that exclusively sell online have been the fastest-growing, indicating that selling online has a significant impact on the success of the business. Options A, C, D, and E do not directly support Stevenson's position.

Question 15

The primary objective of an ESOP is to
A) keep management from making bad decisions.
B) protect against takeovers.
C) prevent worker strikes.
D) provide workers with financial security.
E) motivate workers to work harder.

Accepted Answer

The answer of The primary objective of an ESOP is...

Question 16

When one company sells part of its existing business operations to another company, this is called
A) outsourcing.
B) intense competition.
C) a spinoff.
D) a divestiture.
E) a strategic alliance.

Accepted Answer

When one company sells part of its existing business operations to another company, it is referred to as a divestiture. The company is essentially divesting itself of a particular business unit, product line, or asset.

Question 17

Company A and Company F have been in direct competition for many years. Recently, an announcement was made of a merger between the two companies. This would be a
A) reverse merger.
B) joint venture.
C) vertical merger.
D) friendly takeover.
E) horizontal merger.

Accepted Answer

A merger between two companies that are in direct competition with each other (as described in the scenario) is known as a horizontal merger. Other types of mergers include vertical mergers (between companies in different stages of the same supply chain), reverse mergers (where a private company becomes a public company by merging with a public shell company), joint ventures (a partnership between two companies for a specific project or purpose), and friendly takeovers (where the target company agrees to the acquisition).

Question 18

A corporation may overcome the resistance of a takeover target by implementing which of the following actions?
A) Buy the target company's preferred stock instead of its common stock
B) Reduce the price offered for the target company's stock
C) Threaten to fire the officers of the target company
D) Buy more of the target company's stock
E) File a lawsuit

Accepted Answer

By buying more of the target company's stock, the acquiring corporation may increase its ownership percentage and gain more influence in the company. This could make it more difficult for other shareholders to resist the takeover bid. A and B are unlikely to overcome resistance and may even worsen the situation. C and E are aggressive and confrontational tactics that could damage the acquiring corporation's reputation and make the target company more resistant to the takeover bid.

Question 19

The economy in the African nation Sponeto has been stagnant for a long time. The government and central bank of Sponeto have been considering options for what can be done to help stimulate investment and growth in the economy. The Sponeto national bank advocates increasing the money supply to encourage investment within the country. Which of the following, if true, would strengthen the case that this will cause inflation?
A) Jobs will be created.
B) Banks will lower interest rates.
C) Wages will decrease.
D) Foreign investment will be discouraged.
E) Only low-technology sectors will benefit.

Accepted Answer

Increasing the money supply often leads to lower interest rates because there is more money available for banks to lend. Lower interest rates can encourage borrowing and spending, but if not matched by an increase in goods and services, it can lead to inflation. This is because more money is chasing the same amount of goods, which can push prices up.

Question 20

The economy in the African nation Sponeto has been stagnant for a long time. The government and central bank of Sponeto have been considering options for what can be done to help stimulate investment and growth in the economy. Some in the Sponeto government would like the country to appeal to the World Bank for funding toward economic development, rather than short-term monetary stimulation. Which of the following, if true, would strengthen the case for this course of action?
A) Sponeto has come under criticism in the United Nations for alleged human rights abuses.
B) Sponeto has been able to grow enough food to export to surrounding nations.
C) Corruption is a major problem among Sponeto's government officials.
D) Sponeto urgently needs humanitarian aid due to a recent natural disaster.
E) Chronic and widespread poverty is Sponeto's biggest economic problem.

Accepted Answer

Chronic and widespread poverty is the biggest economic problem in Sponeto, indicating a need for long-term development solutions rather than short-term monetary stimulation. Seeking funding from the World Bank for economic development would align with this need. The other options do not directly relate to the country's economic development, or may even detract from its case for receiving funding from international organizations.

Quiz 2: The Environment of Business

An acquisition takes place when

If Shirley's Subs Inc. purchased Tony's Car Repair Inc., this would be ________.

PepsiCo created a new corporation called Tricon Global Restaurants (now called Yum! Brands Inc.) which included Pizza Hut, KFC, and Taco Bell. This is an example of a(n)

When Molson merged with Adolph Coors, this was an example of

BSX Inc. gave shareholders the right to purchase company stock at a 50 percent discount if a group without approval of BSX's board of directors acquired more than 20 percent of the company's shares. This is an example of

If Toyota Motors purchased Ruscombe Muffler, a small retail muffler business, the purchase would be

Stone Inc. has just been through a friendly takeover. This means that

The primary objective of an ESOP is to

When one company sells part of its existing business operations to another company, this is called

Company A and Company F have been in direct competition for many years. Recently, an announcement was made of a merger between the two companies. This would be a

A corporation may overcome the resistance of a takeover target by implementing which of the following actions?