Rizzo's is a new,well-financed manufacturing firm with high fixed costs.The firm has a strong demand,efficient operations and distribution systems,and low taxes.Rizzo's is most apt to acquire a target firm that will provide
A)vertical integration.
B)economies of scale.
C)unused debt capacity.
D)marketing gains.
E)net operating losses.

Question

Quizplus · Accepted Answer

Rizzo's high fixed costs make it a good candidate for economies of scale, which can help spread those fixed costs over a larger volume of output and lead to lower unit costs. Acquiring a target firm that will provide economies of scale can help Rizzo's achieve this goal. Vertical integration, unused debt capacity, marketing gains, or net operating losses may not necessarily provide this benefit.

Rizzo's Is a New,well-Financed Manufacturing Firm with High Fixed Costs