Question

2. XYZ Limited, a cotton processing company, agreed to merge with another firm.
(a) Identify and explain the type of merger to be formed by the companies.
(b) State four reasons that would have necessitated the formation of the merger.
(c) List and explain three sources of finance available to the company formed.

Accepted Answer

(a) This is a "vertical integration" — the coming together of two or more firms that are in the same chain of supply. For instance, if firm A provides input for firm B, the coming together of firm A and firm B will be regarded as vertical integration.
(b) Firms merge to gain tax incentives (tax that would have been paid separately will now be paid by one, with lesser administrative cost, and with incentives); to correct a financial deficit in one of the firms; to promote efficiency of supply from each end of the firms; to improve asset acquisition of the firms.
(c) Bank loans: the company can seek loans from commercial banks to finance its activities. Issuance of shares: to its members, which can also serve as an alternative source of finance. Retained profit: using the retained profit can also serve as a source of finance to the company.

WAEC Commerce 2022 Theory — Question 2

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