Question 1

Vertical integration is attractive when market transaction costs are higher than internal administrative costs.

Accepted Answer

When market transaction costs are high, it may be more beneficial for a company to integrate vertically and bring certain operations in-house rather than relying on external suppliers or vendors. This is because the cost of coordinating and managing transactions with external parties may be higher than the cost of managing those same activities internally.

Question 2

Upon the acquisition of Microcell, Rogers was able to immediately obtain savings.

Accepted Answer

Rogers was able to obtain immediate savings upon the acquisition of Microcell by leveraging economies of scale, reducing operational redundancies, and optimizing network infrastructure.

Question 3

A golden parachute is a prearranged contract with managers specifying that in the event of a hostile takeover, the target firm's managers will be paid a significant severance package.

Accepted Answer

A golden parachute is indeed a contract provision that gives executives significant benefits if they are ousted from the company, often in the context of a merger or takeover, to provide financial security and discourage hostile takeovers by making it expensive to remove the current management.

Question 4

A publishing company that purchases a chain of bookstores to sell its books is an example of unrelated diversification.

Accepted Answer

This is an example of vertical integration, specifically forward integration, where a company expands its operations into an area that is closer to the end consumer (in this case, retailing) to sell its own products.

Question 5

Greenmail is an offer by a company, threatened by takeover, to offer its stock at a reduced price to a third party.

Accepted Answer

Greenmail is actually an offer by the potential acquirer to the target company to buy back its stock at a premium price in order to prevent a hostile takeover.

Question 6

An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.

Accepted Answer

Internal development allows the firm to focus solely on its own activities and value chain without having to navigate the complexities of working with multiple companies and their cultures.

Question 7

The potential advantages of strategic alliances and joint ventures include entering new markets as well as developing and diffusing new technologies.

Accepted Answer

Strategic alliances and joint ventures allow companies to collaborate and share resources, knowledge, and expertise, which can help them enter new markets and develop and diffuse new technologies more quickly and efficiently than if they were working alone. This can lead to advantages such as increased market share, reduced costs, and improved innovation.

Question 8

Similar businesses working together or the affiliation of a business with a strong parent can strengthen a firm's bargaining position relative to suppliers and customers.

Accepted Answer

Collaboration among similar businesses or an affiliation with a strong parent company can enhance a firm's leverage in negotiations, leading to better terms and conditions from suppliers and more favorable deals with customers due to the combined strength, market presence, or brand recognition.

Question 9

According to the text, the main source of synergy in unrelated diversification is the value created by the knowledge and expertise of the corporate office.

Accepted Answer

In unrelated diversification, the primary source of synergy comes from the corporate office's ability to leverage its broad management knowledge and expertise across different businesses, rather than from operational or strategic similarities between those businesses.

Question 10

Portfolio management should be considered as the primary basis for formulating corporate-level strategies.

Accepted Answer

Portfolio management is a tool used in formulating corporate-level strategies, but it is not the primary basis. Corporate-level strategies are primarily based on the organization's mission, vision, values, and overall goals, taking into account the external environment and internal capabilities. Portfolio management helps in allocating resources among different business units or products to optimize the corporate portfolio, but it is one of several considerations in strategic planning.

Question 11

What are the primary benefits associated with related diversification?

Accepted Answer

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Question 12

Strategic alliances and joint ventures are quickly becoming less prominent in today's global economy.

Accepted Answer

Strategic alliances and joint ventures continue to be significant in today's global economy as companies seek to leverage complementary strengths, enter new markets, and share risks and resources.

Question 13

Through joint ventures, firms can directly acquire the assets and competencies of other firms.

Accepted Answer

Joint ventures allow firms to collaborate and share resources, risks, and rewards in a specific project or business activity, rather than directly acquiring the assets and competencies of other firms.

Question 14

Risk reduction in and of itself is rarely a viable way to create shareholder value.

Accepted Answer

Risk reduction alone may not directly increase shareholder value, as it often involves costs and may not lead to immediate financial gains. Shareholder value is typically created through a combination of risk management, growth opportunities, and efficient operations.

Question 15

One of the risks of vertical integration is that there may be problems associated with unbalanced capacities or unfilled demands along a firm's value chain.

Accepted Answer

Vertical integration can lead to issues such as mismatched capacities or demands within different parts of the company's supply chain, causing inefficiencies.

Question 16

An advantage of mergers and acquisitions is that they can enable a firm to rapidly enter new product markets.

Accepted Answer

Mergers and acquisitions can provide a quick way for a company to enter new markets by acquiring established businesses or products in those markets. This can save time and resources compared to developing new products or expanding into new markets organically.

Question 17

Real options analysis helps managers make investment decisions involving large irreversible commitments of financial resources.

Accepted Answer

ROA is appropriate to use when investments can be staged whereby a smaller investment up front can be followed by subsequent investments. Real options can be applied to an investment decision that gives the company the right, but not the obligation, to make follow-on investments.

Question 18

Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

Accepted Answer

This statement is true. Portfolio management matrices, such as the BCG matrix, typically use two axes to plot a business's products or services based on industry or market growth and the business's market share within that industry or market. This helps businesses identify which products or services to invest in, divest from, or focus on maintaining.

Question 19

What are the primary benefits associated with unrelated diversification?

Accepted Answer