CIA-IV Financial The Certified Internal Auditor Part 4
QUESTION: 180 The managerial factor that may lead to overbuilding in an industry is A. Management's belief that the career consequences of overcapacity appear to be more serious than those of under capacity. B. Management's production orientation. C. Inflation of expectations by industry buzz. D. Uncertainty caused by changes in industry structure. Answer: B Management that is production-oriented may be more likely to overbuild than marketing-or finance- oriented management. QUESTION: 181 What governmental factor most likely will lead to overbuilding in a global industry? A. Tax incentives are given to local subsidiaries of foreign firms. B. The government favors an indigenous industry that has a small minimum efficient scale. C. Environmental regulations are imposed on domestic firms. D. Anti-bribery laws impede domestic firms from competing globally. Answer: A Governmental factors may lead to overbuilding. For example, tax incentives may promote excess capacity by permitting foreign subsidiaries to pay no tax on earnings retained in the business. A nation also may wish to create an indigenous industry. When the minimum efficient scale is great in relation to world demand, the excess production in the country may contribute to global overcapacity. Furthermore, governmental employment pressures may result in overbuilding to create jobs or avoid job loss. QUESTION: 182 Which factor is most likely to limit expansion of a firm's productive capacity? A. Senior managers have production backgrounds. B. The firm operates in one industry. C. Current technology will soon be obsolete. D. Demand uncertainty is low.
Answer: C A firm's behavior may send signals to competitors that building is unwise. For example, it may announce an expansion project or indicate in some way that forecasts of demand are unfavorable or that current technology will soon be obsolete. QUESTION: 183 What condition is most likely necessary to the success of a strategy of preemptive expansion?
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- Fall '20
- Business, Capitalism, Firm, Capacity utilization, Certified Internal Auditor Part