What is it called when a diversified company can add value by shifting capital from business units generating free cash flow to those needing additional capital to expand and realize their growth potential?
A)internal capital market
B)cash cow benefits
C)economic value added
D)shareholder value added
E)transaction cost valuation

Question

Quizplus · Accepted Answer

This is a classic example of an internal capital market, where a diversified company is able to allocate capital efficiently across its different business units to achieve overall growth and profitability. By shifting resources from cash-generating business units to those with higher growth potential, the company can optimize its portfolio and create value for shareholders. Cash cow benefits, economic value added, and shareholder value added are all related concepts, but they do not specifically describe the mechanism by which capital is allocated within a diversified company. Transaction cost valuation is not relevant to this scenario.

What Is It Called When a Diversified Company Can Add