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Resources “lying around” and not productively

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Unformatted text preview: resources “lying around” and not productively invested). (½) Debt–equity ratio : The measure of the fraction of a firm’s assets that are financed by debt. (½). The lower the debt amount, the lower the loan repayments and interest expenses. This has a positive effect on the firm’s cash flow and profitability. (½) Inventory turnover : The number of times stock/inventory is “sold over”/“turned over” during the year. (½). The higher the ratio (number of turnover(s)), the higher the firm’s income. (½) 14 MNE3701/201 2.3 Pricing strategies (10) Refer to pages 405 and 406 of Moore et al. (a) Penetration (2) A firm that uses a penetration pricing strategy prices a product or service at less than its normal, long-range market price in order to gain more rapid market acceptance or to increase existing market share. This strategy can sometimes discourage new competitors from entering a market niche if they mistakenly view the penetration price as long-range price. (b) Skimming pricing (2) A skimming price strategy sets prices for products or services at high levels for a limited period of time before reducing prices to lower, more competitive levels. This strategy assumes that certain customers will pay a higher price because they view a product or service as a prestige item. (c) Variable pricing (2) Some businesses use a variable pricing strategy to offer price concessions to certain customers, even though they may advertise a uniform price. Lower prices are offered for various reasons, including a customer’s knowledge and bargaining strength. (d) Follow-the-leader pricing (2) The strategy uses a particular competitor as a model in setting a price for a product or service. The probable reaction of competitors is a critical factor in determining whether to cut prices below a prevailing level. A small business in competition with larger firms is seldom in a position to consider itself the price leader. If competitors view a small firm’s pricing as relatively unimportant, they may not respond to a price differential. On the other hand, some competitors may view a smaller price cutter as a direct threat and counter with reductions of their own. (e) Price lining (2) A price lining strategy establishes distinct price categories at which similar items of retail merchandise are offered for sale. The amount of inventory stocked at different quality levels would depend on the income levels and buying desires of a store’s 15 MNE3701/201 customers. A price lining strategy has the advantage of simplifying the selection process for the customer and reducing the necessary minimum inventory. QUESTION 3 Sources of employee recruitment that can be used to find suitable applicants for the job. (10) Refer to pages 503 and 504 of Moore et al....
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