Question

In: Economics

Suppose you are the manager of a corporation that typically acquires high-end, expensive beef and potato...

Suppose you are the manager of a corporation that typically acquires high-end, expensive beef and potato product restaurants. Due to the COVID-19 pandemic, the economy is expected to enter a major recession within the next few months. Accordingly, the chief operating officer of the company comes to you and hands you the following data. Note: (Exy) denotes the cross-price elasticity of demand between your corporation’s products and the products of other firms.

            The Mustard Factory                                      = -1.2

            Ketchup Delight!                                            = -1.1

            Sounds Fishy to Me                                        = +2.2

            Chicken and Pork Concerns                           = +1.3

            Sword and the Shield Health Care                = 0.0

            The COO and the board of directors have discussed acquiring one of the above firms. Both The Mustard Factory and Ketchup Delight! are firms that supply those respective condiments to expensive restaurants all over the country. Sounds Fishy To Me is a fine- dining restaurant that serves seafood. Chicken and Pork Concerns is a restaurant that serves poultry products in fine dining. Lastly, Sword and the Shield Health Care is a major health care provider.

            Furthermore, the COO has stressed that, given the upcoming business cycle, the board of directors wishes to acquire a business to diversify the corporation’s overall portfolio. They wish to acquire a company as a defense against major losses expected to accompany the nearing recession.

Given the above data, which firm would you recommend that your company acquire? Explain the concept of diversification and the type of merger (horizontal, vertical, conglomerate) that the board of directors is most likely looking for here. What is your reasoning?

Solutions

Expert Solution

As the firm wants to diversify in the times of COVID-19, two scenario's are possible,

1. Company go for acquiring "Sounds fishy to me" which will be a horizontal merger. Because the cross price elasticty of products is +2.2 they are substitute goods. A fall in one good will be compensated by the rise in another good. Thus comapny can hedge its situation by this merger.

Where horizontal merger is merger with the firm within the same industry, thus gaining higher market share together and utilising their synergies and operating at bigger scale.

Also vertical merger is a merger of a firm buying its own supply chain, to reach closer to its customer.

2. A conglomerate is a company dealing in different businesses in different industry under one corporate name. They usually have many subsidaries under a parent name.

Acquisition of "Sword and the shield health care", Acquiring a new company operating in a different industry, where the two industry are not in any sink can also save the industry from falling. As a fall in food industry might be saved by a rise in healthcare industry or vice versa.


Related Solutions

Classic Bicycles Inc. makes moderately expensive bikes and very high end custom bikes. The moderately expensive...
Classic Bicycles Inc. makes moderately expensive bikes and very high end custom bikes. The moderately expensive bikes sell for $600 apiece whereas the high end bikes sell for $8,000 apiece. The Company uses an outside marketing agency to promote both of their products. The Company pays the agency $4,000,000 per year for marketing activities. Income Statement High End Moderate Sales Quantity 1,000 20,000 Sales $8,000,000 $12,000,000 Cost of Goods Sold 5,000,000 10,000,000 Gross Profit 3,000,000 2,000,000 Marketing Costs 1,600,000 2,400,000...
1a) Suppose consumers typically buy some combination of various meats (chicken, beef, pork, and fish). Suppose...
1a) Suppose consumers typically buy some combination of various meats (chicken, beef, pork, and fish). Suppose the price of fish and beef rise much more than chicken and pork. The effect on the price index is likely ________; this is called the _________. overstated; substitution effect understated; substitution effect overstated; price effect understated; price effect b) If nominal GDP increases from one year to the next by more than real GDP, which of the following must be true? there is...
You are the president of High Power Corporation. At the end of the first year of...
You are the president of High Power Corporation. At the end of the first year of operations (December 31, 2017), the following financial data for the company are available:      Cash $ 18,250   Accounts Receivable 14,000   Supplies 8,400   Equipment 132,000   Accounts Payable 76,500   Notes Payable 1,860   Sales Revenue 132,000   Operating Expenses 79,200   Other Expenses 12,900   Contributed Capital 55,500   Dividends 1,110 Required: 1. Prepare an income statement for the year ended December 31, 2017. 2. Prepare a statement of retained earnings...
You are the international manager for an American MNC that specializes in high-end winter sports gear....
You are the international manager for an American MNC that specializes in high-end winter sports gear. You have been asked to profile a country in the European Union and make a recommendation for entry. Using the readings, Lecture, and your own research, complete a report, as an international manager, to submit to your CEO. This writing assignment should be completed in the standard APA format. Upload the assignment to the proper assignment folder. You need to include the following elements...
Suppose you are a high-level manager in a software firm and you are managing n software...
Suppose you are a high-level manager in a software firm and you are managing n software projects. You are asked to assign m of the programmers in your firm among these n projects. Assume that all of the programmers are equally competent. After some careful thought, you have figured out how much benefit i programmers will bring to project j. View this benefit as a number. Formally put, for each project j, you have computed an array Aj[0..m] where Aj[i]...
4-9 Suppose you were comparing a discount merchandiser with a high-end merchandiser. Suppose further that both...
4-9 Suppose you were comparing a discount merchandiser with a high-end merchandiser. Suppose further that both companies had identical ROEs. If you applied the DuPont equation to both firms, would you expect the three components to be the same for each company? If not, explain what balance sheet and income statement items might lead to the component differences. 4-10 Indicate the effects of the transactions listed in the following table on total current assets, current ratio, and net income. Use...
The Bag Corporation is a distributor of high end golf bags. In the past, The Bag...
The Bag Corporation is a distributor of high end golf bags. In the past, The Bag Corporation produced and sold the golf bags. Over time, they realized it was cheaper to buy the golf bags fully assembled and resell them to the public, therefore eliminating their need for a manufacturing plant. The Bag Corporation pays $60 per golf bag and sells them for $180. Prepare a 2021 (January – December) Revenue Budget (for units and sales dollars) for The Bag...
CanWest Corporation is a newly established IT company that focuses on high-end software development for the...
CanWest Corporation is a newly established IT company that focuses on high-end software development for the worldwide market. Assume that you were the CFO. Suggest the capital structure that can suit this corporation best. Discuss and explain. ASAP
if your company sells expensive, high quality kitchen appliances, do you think the average college student...
if your company sells expensive, high quality kitchen appliances, do you think the average college student will fit ideal customer profile?
Suppose Acap Corporation will pay a dividend of $1.9 per share at the end of this...
Suppose Acap Corporation will pay a dividend of $1.9 per share at the end of this year and $2.15 per share next year. You expect Acap’s stock price to be $35 in two years. Assume that Acap’s equity cost of capital is 13%. What price would you be willing to pay for a share of Acap stock today?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT