Question 1

With respect to emerging markets and developed markets,which of the following is most accurate concerning the role and importance of having influence on critical stakeholders in determining who is the best owner of a business?

A)It can be important in the case of developed markets and is more rarely important in the case of emerging markets.
B)It can be important in the case of emerging markets and is more rarely important in the case of developed markets.
C)It is usually not important,and it is never a reason a given firm might be the best owner of a given business.
D)It is equally important in both developed and emerging markets.

B

Accepted Answer

In emerging markets, where regulations may be more fluid and potentially unstable, having influence on critical stakeholders (such as government officials and community leaders) can be crucial for the success of a business acquisition. In contrast, in developed markets with more established regulatory frameworks, the importance of having influence on critical stakeholders may be less significant. Therefore, choice B is the most accurate statement.

Question 2

On a given list,which is most likely the first step in adding value?&#10;A)Identify initiatives for potential new growth.&#10;B)Assess possible improvements in operations.&#10;C)Assess potential divestments and/or acquisitions.&#10;D)Estimate how the company's value might be increased through changes in its capital structure.

Accepted Answer

Before identifying initiatives for new growth or assessing potential divestments and acquisitions, it is important to assess possible improvements in operations. This will help to identify areas where the company can increase efficiency and reduce costs, which can ultimately lead to increased profitability and value. Once operational improvements have been made, then the company can explore new growth initiatives or potential divestments and acquisitions. Estimating changes in capital structure would come after these steps have been taken.

Question 3

Better governance refers to the way the company's owners (or their representatives )interact with the management team,and it is often a way private equity firms add value to acquisitions.

Accepted Answer

This statement is true, as private equity firms often aim to improve corporate governance in their portfolio companies as a way to increase operational efficiency and profitability. Strong governance practices also help to mitigate risk and ensure compliance with legal and regulatory requirements.

Question 4

Which of the following would be the LEAST likely way a conglomerate could add value to an acquired company?&#10;A)Innovation.&#10;B)Additional funds.&#10;C)Distribution channels.&#10;D)Managerial experience.

Accepted Answer

Innovation is important for a company's growth, but it is not the only way that a conglomerate can add value to an acquired company. The other options (additional funds, distribution channels, and managerial experience) are all ways that a conglomerate can improve the performance of an acquired company.

Question 5

Which of the following would be the LEAST likely way a private equity firm could add value to an acquired company?&#10;A)Recapitalization.&#10;B)Additional funds.&#10;C)Distribution channels.&#10;D)Managerial experience.

Accepted Answer

Distribution channels are not typically an area in which private equity firms specialize or have expertise. The other options (recapitalization, additional funds, and managerial experience) are all common ways that private equity firms can add value to a company.

Question 6

The type of owner that qualifies as best for a business may change over the course of the business's life cycle and will probably vary with its geography.

Accepted Answer

The type of owner that is best for a business may change over time and can vary depending on the location. For example, a small, family-owned business may benefit more from a hands-on owner in the early stages, while a larger corporation may require a more experienced executive as the company grows. Additionally, cultural and economic factors in different regions may influence the type of owner that is best suited for a business.

Question 7

Which of the following are valid reasons a given firm might be the best owner of a particular business?
I.Unique links with other businesses (e.g. ,distribution lines).
II.Distinctive skills such as advertising.
III.Better governance.
IV.Better insight and foresight.

A)I and II only.
B)I,II,and III only.
C)II and IV only.
D)I,II,III,and IV.

Accepted Answer

All the options listed are valid reasons why a given firm might be the best owner of a particular business. Unique links with other businesses can provide competitive advantages in distribution or supply chain management. Distinctive skills, such as advertising prowess, can differentiate a firm in the marketplace. Better governance can lead to more efficient and effective decision-making and oversight, enhancing performance. Lastly, better insight and foresight can enable a firm to anticipate market trends and adapt strategically, securing its competitive position.

Question 8

Traditional screening approaches are the best way to apply the best-owner principle.

Accepted Answer

Traditional screening approaches such as resumes and interviews may not always effectively identify the best candidate who aligns with the best-owner principle, as they may not accurately reflect the candidate's values and ethics. Other approaches such as behavioral assessments and reference checks may be more effective in identifying a candidate's fit with the principle.

Question 9

Which of the following are true concerning diversification and/or diversified firms?
I.Diversified firms have higher levels of debt.
II.There is strong evidence that diversification adds value.
III.Investors can diversify their portfolios at lower cost than companies can.
IV.There is strong evidence that diversified firms have smoother cash flows.

A)I and II only.
B)I,II,and IV only.
C)III only.
D)I,II,III,and IV.

Accepted Answer

III is correct because investors can indeed diversify their portfolios at a lower cost than companies due to the availability of various financial instruments and markets. This allows individual investors to spread their investments across different assets more efficiently than a company can diversify its operations. There isn't strong evidence that diversification always adds value to firms or that diversified firms have higher levels of debt. While diversified firms might have smoother cash flows due to the spread of risk across different business units, this statement alone doesn't validate the other options.

Question 10

Define corporate governance and describe the evidence of the role it can play in value creation from studies of the returns of private equity firms investing in companies.

Accepted Answer

The answer of Define corporate governance and describe the evidence...

Question 11

With respect to owning and adding value to a consumer packaged-goods business,a firm with great manufacturing skills would probably be a better owner than a firm with distinctive skills in developing and marketing brands.

Accepted Answer

The answer of With respect to owning and adding value...

Deck 25: Corporate Portfolio Strategy