Question 1

Backward integration occurs when a company

Accepted Answer

Backward integration occurs when a company produces its own inputs, meaning it acquires or establishes businesses that supply the inputs needed for its operations. This helps the company have greater control over the quality and delivery of the inputs, and can lead to cost savings and improved efficiency.

Question 2

An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops

Accepted Answer

An internal market for capital allocation can help a firm keep its competitive advantages by reducing the need for external investment or borrowing, which could require disclosing sensitive information to outside parties.

Question 3

What is the similarity between high-technology firms and service-based firms that makes them risky as restructuring candidates?

Accepted Answer

Both high-technology firms and service-based firms are heavily dependent on their employees' skills and expertise, making them vulnerable to potential disruptions in workforce during restructuring. This makes them risky as restructuring candidates.

Question 4

The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be

Accepted Answer

The answer of The value of the assets of a...

Question 5

PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a
Business.

Accepted Answer

PorkPride Foods is vertically integrated as it owns hog raising operations, which are an upstream activity in the pork industry. This allows the company to control and manage the entire supply chain from breeding and raising hogs to producing meat products.

Question 6

When a firm simultaneously practices operational relatedness and corporate relatedness,

Accepted Answer

When a firm practices both operational and corporate relatedness, it can often be difficult for investors to observe the value created by the firm. This is because the firm's overall performance will depend on a number of different factors, making it harder to measure the impact of specific strategies or initiatives. As a result, the firm may be undervalued by investors who are not able to fully appreciate the benefits of its approach.

Question 7

Although a(n)

Accepted Answer

The answer of Although a(n)
...

Question 8

Large diversified businesses often face what is known as the "conglomerate discount." This discount means that investors

Accepted Answer

The conglomerate discount refers to investors believing that the value of conglomerates is less than the value of the sum of their parts, resulting in a lower market valuation compared to their individual businesses. The other options are not accurate descriptions of the conglomerate discount.

Question 9

The risk for firms that follow the unrelated diversification strategy in developed economies is that

Accepted Answer

The answer of The risk for firms that follow the...

Question 10

Successful unrelated diversification through restructuring is typically accomplished by

Accepted Answer

The answer of Successful unrelated diversification through restructuring is typically...

Question 11

Virgin Group successfully transfers its marketing core competence across airlines,cosmetics,music,drinks,mobile phones,health clubs,and a number of other businesses. Virgin follows a(n) diversification corporate strategy.

Accepted Answer

The answer of Virgin Group successfully transfers its marketing core...

Question 12

A company pursuing vertical integration can gain market power over its competitors through all of the following
EXCEPT

Accepted Answer

The answer of A company pursuing vertical integration can gain...

Question 13

Large diversified businesses often face a
,which results from analysts not knowing how to
Value a vast array of large businesses with complex financial reports.

Accepted Answer

The term "conglomerate discount" refers to the phenomenon where the stock price of a conglomerate (a large company with diverse business units) is valued less than the sum of its individual parts. This is due to investors and analysts not fully understanding or being able to value the company's different businesses and financial reports, leading to a decrease in the company's overall valuation.

Question 14

Which of the following is NOT a limitation directly relating to vertical integration?

Accepted Answer

The limitation of core technology by potential competitors is not directly related to vertical integration. The other options listed (bureaucratic costs, loss of flexibility through investment in specific technologies, and capacity balance and coordination problems from changes in demand) are all known limitations of vertical integration.

Question 15

Specialty Steel,Inc.,needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the United States make this type of brick. Specialty Steel has decided to buy one of these brick plants. This is an example of

Accepted Answer

Backward integration involves a company acquiring a supplier, and in this case, Specialty Steel is acquiring a brick plant, which is a supplier of the essential bricks needed for their production process.

Question 16

Which type of diversification is most likely to create value through financial economies?

Accepted Answer

Unrelated diversification involves entering into businesses that are unrelated to the firm's current line of business. This type of diversification can create value through financial economies because the firm can take advantage of financial synergies, such as tax savings, shared services, and economies of scale in financing activities. Related diversification, on the other hand, may involve operational or corporate relatedness, but it may not necessarily result in financial economies.

Question 17

Specialty Steel,Inc.,needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the United States make this type of brick. Specialty Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick.

Accepted Answer

Specialty Steel's ownership of one of the only two brick plants that produce the required fire brick means that it is vertically integrated in the production of this input. The development of the new technology by the other brick plant reduces the cost of production but Specialty Steel is unable to take advantage of this cost-saving option as it owns the other plant that continues to use the expensive clay. This lack of flexibility is a result of its vertical integration.

Question 18

A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT

Accepted Answer

Acquiring other firms with innovative products instead of allocating capital to research and development is not a reason why a firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can. The other options (A, B, and D) are valid reasons why a firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can.

Question 19

The Mars acquisition of the Wrigley assets was part of its related constrained diversification and added market
Share to the Mars/Wrigley integrated firm. It allowed Mars to gain the market level or reduce its costs below the market level.

Accepted Answer

The acquisition allowed Mars to increase its market share and potentially exert greater control over pricing and distribution, which is indicative of gaining market power.

Question 20

Walt Disney Company has successfully used related diversification to create value by

Accepted Answer

Walt Disney Company has successfully used related diversification to create value by sharing activities and transferring core competencies. By leveraging their strong brand and media networks, they have entered various business segments such as theme parks, movie production, and retail stores, and have applied their core competencies in animation, story-telling, and customer experience design to create synergies and competitive advantages across these businesses. For example, the success of Disney's films can lead to increased merchandise sales at their retail stores and theme parks, while the feedback and data collected from customers at their theme parks can inform and improve their future movie productions. By sharing activities and transferring core competencies, Disney has been able to reduce costs, increase revenue, and strengthen their overall competitiveness.

Quiz 6: Corporate-Level Strategy.