Asked by Chandler Mckay on Sep 24, 2024
Verified
Purchasing a profitable supplier increases profit only if
A) You pay equal to the value of the company's inventory
B) You pay higher than the value of the company's future profits
C) You pay lower than the value of the company's discounted future profits
D) You pay lower than the value of the company's undiscounted future profits
Undiscounted Future Profits
The projected earnings from an investment over time without adjusting for present value or future risk.
Discounted Future Profits
The present value of a company's projected future profits, adjusted for time and risk.
Inventory
The total amount of goods and materials held in stock by a business, warehouse, or point of sale.
- Explore the strategic motives for acquiring suppliers or customers to elevate profitability.
- Analyze the idea of combined advantage in the process of mergers and acquisitions.
Verified Answer
RM
Ranjeet Mahal1 day ago
Final Answer :
C
Explanation :
When purchasing a profitable supplier, it is important to ensure that the purchase price is lower than the discounted future profits of the company. This takes into account the time value of money and provides a more accurate representation of the company's true value. By paying less than the discounted future profits, the buyer can ensure a profit on their investment. Option A is incorrect as it only considers the inventory value and not the company's overall value. Option B is incorrect as paying higher than the value of future profits would result in a loss for the buyer. Option D is incorrect as undiscounted future profits do not take into account the time value of money, which can result in an inaccurate valuation of the company.
Learning Objectives
- Explore the strategic motives for acquiring suppliers or customers to elevate profitability.
- Analyze the idea of combined advantage in the process of mergers and acquisitions.