Question 1

Which of the following is a valid type of contribution a new venture may make to the parent corporation?
A) repositioning existing businesses
B) growth in corporate revenues and earnings
C) corporate risk reduction
D) all of the above

Accepted Answer

New ventures can contribute to the parent corporation in various ways, including repositioning existing businesses, driving growth in revenues and earnings, and reducing overall corporate risk.

Question 2

Which of the following types of contribution of the parent to the new venture is generally questionable?
A) entrepreneurial management skills
B) general management skills
C) financial capital alone
D) none of the above

Accepted Answer

Financial capital alone is generally considered a questionable contribution because it does not ensure that the parent has the necessary skills or commitment to contribute to the success of the new venture beyond just providing funds.

Question 3

Which types of new business will a corporation's financial capital contribute the most to?
A) smaller units in mature industries
B) larger businesses in growing industries
C) smaller units in growing industries
D) larger businesses in mature industries

Accepted Answer

C

Question 4

Codifiable capabilities may add less value to a new venture because:
A) they are harder to defend from imitation
B) they are more difficult to transfer than more tacit or intangible resources
C) their benefit to the corporate parent makes them difficult to transfer
D) none of the above

Accepted Answer

Codifiable capabilities are easier to imitate because they can be clearly defined and documented, making it easier for competitors to replicate them. This reduces their value to a new venture as unique or competitive advantages.

Question 5

A core competence combines which of the following two types of corporate contributions to a business:
A) entrepreneurial skill and core marketing capability
B) risk reduction and technical capability
C) a strong technological platform and entrepreneurial skill
D) financial management and technical capability

Accepted Answer

A core competence typically involves a combination of a strong technological platform and entrepreneurial skill, enabling a company to innovate and adapt in its market.

Question 6

When the growth demands of a new venture differ from those of the parent's existing businesses:
A) the risk of failure is lower
B) management's experience is less applicable
C) the venture presents a weak opportunity
D) none of the above

Accepted Answer

Management's experience is less applicable when the growth demands of a new venture differ significantly from those of the parent company's existing businesses. This is because the skills, knowledge, and strategies that worked for the parent company's original market may not be as effective in the new venture's market.

Question 7

Which of the following is a determinant of an attractive market for diversification?
A) large ultimate market size
B) strong market growth
C) a favorable future industry structure
D) all of the above

Accepted Answer

All of the listed options are determinants of an attractive market for diversification. A large ultimate market size, strong market growth, and a favorable future industry structure all contribute to making a market appealing for companies looking to diversify their operations.

Question 8

Which of the following is not a key task in new venture governance within a corporation?
A) building new coordination and control mechanisms
B) establishment of key relations with outside sources of capital
C) development of appropriate management incentives
D) use of separate resource allocation mechanisms

Accepted Answer

Establishment of key relations with outside sources of capital is not typically considered a key task in new venture governance within a corporation. New venture governance within a corporation mainly focuses on internal processes such as coordination and control mechanisms, management incentives, and resource allocation mechanisms. External capital relations are more relevant to independent startups than to corporate ventures, which usually rely on internal funding.

Question 9

Carve-outs provide a means to accomplish which of the following?
A) provide a means for valuing the venture
B) build entrepreneurial incentives within the firm
C) neither of the above
D) both of the above

Accepted Answer

Carve-outs can both provide a means for valuing the venture by establishing its market value through partial initial public offerings and build entrepreneurial incentives within the firm by allowing employees to have a direct stake in the success of the venture.

Question 10

Which of the following factors or activities are critical determinants of cash flows in the Ongoing Operations stage of an acquisition?
A) risk management
B) due diligence
C) dynamic capabilities
D) integration planning

Accepted Answer

Dynamic capabilities are critical in the Ongoing Operations stage as they enable the organization to adapt, integrate, and reconfigure internal and external competencies to address rapidly changing environments, thus impacting cash flows.

Question 11

The diversification paths of firms in the same industry vary across countries because countries differ in the institutions that present diversification opportunities.

Accepted Answer

Countries have different institutional frameworks, regulations, and market conditions that influence the diversification opportunities available to firms, leading to variations in diversification paths among firms in the same industry across different countries.

Question 12

A major risk in using a new venture to reposition existing businesses is that the diversifying firm may not be able to sustain the new venture's market position.

Accepted Answer

Diversifying into new ventures involves risks such as the firm's inability to understand the new market dynamics, lack of expertise, and potential dilution of focus and resources, which can lead to difficulties in sustaining the new venture's market position.

Question 13

Business diversification occurs when a product line is broadened or redesigned.

Accepted Answer

Business diversification refers to a strategy where a company enters into a new market or industry which it is not currently in, often by developing new products or services, rather than simply broadening or redesigning its existing product line.

Question 14

It is generally accepted that, on average, firms can be more efficient as a source of funds for a new business than the external capital markets they replace.

Accepted Answer

Firms typically rely on external capital markets to raise funds because these markets can offer a wider range of financing options and potentially lower costs of capital compared to internal funding sources. External markets provide access to a broader pool of investors, which can lead to more efficient capital allocation.

Question 15

As a motivation for diversification, risk reduction should not be subordinated to improving returns in each business unit.

Accepted Answer

The answer of As a motivation for diversification, risk reduction...

Question 16

The problem of transferring capabilities is more acute for firms diversifying for the first time.

Accepted Answer

Firms diversifying for the first time often lack experience and established processes for transferring capabilities to new business areas, making the problem of capability transfer more acute compared to firms with prior diversification experience.

Question 17

Valuation methods for new business units need not be tailored to their markets.

Accepted Answer

Valuation methods for new business units should be tailored to their specific markets because different markets have unique characteristics, growth potentials, risks, and competitive dynamics that can significantly affect the value of a business.

Question 18

Management expertise in designing and implementing a particular strategy within the parent company is potentially valuable for new ventures.

Accepted Answer

Management expertise in designing and implementing strategies within the parent company can provide valuable insights, experience, and knowledge that can be leveraged to support new ventures, helping them to navigate challenges and achieve success more effectively.

Question 19

In both the turnaround and integration stages of an acquisition, a firm must make a significant contribution to the new unit to justify the diversification move to investors.

Accepted Answer

During both the turnaround and integration stages of an acquisition, a firm must indeed make significant contributions to the new unit, such as financial resources, managerial expertise, or technology, to ensure the success of the diversification and justify the move to investors by demonstrating the potential for added value or synergies.

Question 20

One explanation for merger waves is shifts in the rules of competition in specific industries.

Accepted Answer

Merger waves can be triggered by changes in regulatory environments, technological advancements, or shifts in market dynamics that alter the competitive landscape, prompting companies to consolidate to maintain or enhance their market positions.

Quiz 9: New Business Development

Which of the following is a valid type of contribution a new venture may make to the parent corporation?

Which of the following types of contribution of the parent to the new venture is generally questionable?

Which types of new business will a corporation's financial capital contribute the most to?

Codifiable capabilities may add less value to a new venture because:

A core competence combines which of the following two types of corporate contributions to a business:

When the growth demands of a new venture differ from those of the parent's existing businesses:

Which of the following is a determinant of an attractive market for diversification?

Which of the following is not a key task in new venture governance within a corporation?

Carve-outs provide a means to accomplish which of the following?

Which of the following factors or activities are critical determinants of cash flows in the Ongoing Operations stage of an acquisition?