Diversification merits strong consideration whenever a single-business company:
a. Has integrated backward and forward as far as it can.
b. Is faced with diminishing market opportunities and stagnating sales.
c. Has achieved industry leadership in its main line of business.
d. Encounters de...
a. Has integrated backward and forward as far as it can.
b. Is faced with diminishing market opportunities and stagnating sales.
c. Has achieved industry leadership in its main line of business.
d. Encounters declining profits in its mainstay business. - ANSWERb. Is faced with diminishing market
opportunities and stagnating sales.
Which of the following is a value-reducing reason for diversification? a. Enhancing the strategic
competitiveness of the entire company
b. Obtaining economies of scope by sharing activities
c. Expanding the business portfolio in order to diversify managerial employment risk
d. Gaining market power relative to competitors - ANSWERc. Expanding the business portfolio in
order to diversify managerial employment risk
A firm practicing unrelated diversification can make better capital allocations to its businesses than
the external market can for all the following reasons EXCEPT:
a. Corporate headquarters can allocate capital according to more specific criteria than is possible
with external market allocations.
b. Corporate headquarters has more complete information about the subsidiary businesses than the
external capital market.
c. The firm can acquire other firms with innovative products instead of allocating capital to research
and development.
d. Corporate headquarters can more effectively discipline underperforming management teams
through resource allocation than can the external market. - ANSWERc. The firm can acquire other
firms with innovative products instead of allocating capital to research and development.
All of the following are problems associated with acquisitions EXCEPT:
a. Managers overly focused on acquisitions
b. Integration difficulties
c. Large or extraordinary debt
, d. Excessive time spent on the due diligence process - ANSWERd. Excessive time spent on the due
diligence process
Assuming poor subsequent performance using M&A, which of the following restructuring strategies
involves refocusing on the company's core business?
a. Downscoping
b. Downsizing
c. Leveraged buyout
d. Employee buyout - ANSWERa. Downscoping
How does a horizontal acquisition tend to increase a firm's market power?
a. It increases a firm's market power because the resulting entity controls additional portions of the
industry's value chain.
b. It increases market power primary through an increase in firm size.
c. It increases market power by lessening dependence on specific products or markets, where
competitive rivalry may adversely impact profitability.
d. It increases market power by exploiting cost- and revenue-based synergies, particularly when the
firms have similar characteristics. - ANSWERd. It increases market power by exploiting cost- and
revenue-based synergies, particularly when the firms have similar characteristics.
Which of the following is not a typical reason for companies to expand into the markets of foreign
countries?
a. To gain access to new customers
b. To strengthen its capability to employ offensive strategies, especially those that involve
preemptive strikes
c. To achieve lower costs and enhance the firm's competitiveness
d. To spread business risk across a wider geographic market base - ANSWERb. To strengthen its
capability to employ offensive strategies, especially those that involve preemptive strikes
A global international strategy is preferable to other approaches when:
a. A big majority of the company's rivals are pursuing localized multi-country strategies.
b. Market growth rates vary considerably from country to country.
c. Country-to-country differences are small enough to be accommodated with the framework of a
mostly standardized product or service.
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