Question

"Imagine that General Mills’ senior managers meet to discuss the company’s U.S. retail food strategy. Suppose a consultant tells the management team, "General Mills needs to identify more successful smaller companies like Annie’s and buy them." One of the managers responds, "The purchase of Annie’s cost $820 million. Since we need to invest in our snack foods, which are doing well, there’s a limit on how many companies we can afford to acquire." Which criterion is this manager using to evaluate the proposed strategy?"

Answer 1

The manager is using the financial criterion to evaluate the strategy of acquiring smaller companies, stressing the need to wisely allocate limited funds and focus on successful divisions.

Step-by-step explanation:

The manager in the given scenario is using the financial criterion to evaluate the proposed strategy of acquiring smaller companies. The concern highlighted by the manager is the high cost associated with acquisitions, exemplified by General Mills' purchase of Annie’s for $820 million, and the competing need for funds to invest in another sector of the company, namely the snack foods division. This decision-making process emphasizes the importance of financial resources and the need for balance in allocation to ensure the company does not overextend itself and is able to focus on successful sectors.

Answer 2

The answer is: Cost benefit analysis

Step-by-step explanation:

First of all, there´s always a limit on how much money a corporation or anyone else has to buy new businesses or invest in current operations. So you must decide what are you going to buy or invest in based on the benefits you expect to receive. You buy or invest in the options that offer the most benefit for the money invested.

For instance you have a total budget of $100 million for acquisitions in your corporation and the options are:

Company Cost Expected benefits Benefit/cost ratio

Freddie´s $60 MM $80 MM 1.33

Jack´s $40 MM $64 MM 1.6

Olivia´s $30 MM $45 MM 1.5

Based on the benefits cost ratio, management would probably decide to acquire Jack´s and Olivia´s corporations since their ratio is highest (1.6 and 1.5).