Analyze how changes in gold prices may affect ABC's strategy.

• A. Higher gold prices would make expansion less attractive
• B. Lower gold prices would have no effect
• C. Higher gold prices would make expansion more attractive, while lower prices might reduce margins and delay investment
• D. Gold prices determine only product pricing

Answer: (C)

When a business is exposed to the price of a key commodity like gold, the level of that price directly affects profitability and cash flow, which in turn shapes strategic decisions such as expansion. If gold prices rise, the revenue (and often profit) per unit increases, improving projected cash flows and the return on any new capacity. That makes expansion more attractive because the investment is more likely to generate a solid payoff and quicker repayment. If prices fall, margins shrink and cash flows weaken, raising risk and making the investment less attractive or delaying it until price conditions improve. This reasoning assumes ABC is positioned where gold price directly influences profitability, such as a gold producer or a business with gold as a significant input. The other options miss this link: higher prices don’t automatically make expansion less attractive; lower prices do affect margins; and pricing is not the only way gold prices influence strategy.