Question 1

When unrelated diversification is taken to the extreme and there are many unrelated businesses, the firm is referred to as a ________.
A) monopoly
B) conglomerate
C) oligopoly
D) cartel

Accepted Answer

A conglomerate is a company that has diversified into unrelated industries or sectors, often through mergers or acquisitions. It can have a wide range of businesses in different industries, such as media, healthcare, financial services, and consumer goods.

Question 2

Investors can make reasonable estimates of a business unit's potential independent value by using ________ ratios.
A) revenue to cost
B) price to earnings
C) human resource costs to price
D) price to cost

Accepted Answer

Price to earnings ratios (P/E ratios) are commonly used by investors to estimate the potential value of a business unit. The P/E ratio compares the company's current stock price to its earnings per share, giving investors an understanding of how much they are paying for each dollar of earnings. This ratio can then be compared to industry averages or similar companies to gauge the potential value of the business unit in question.

Question 3

All of the following can impede management's designs to create synergies except ________.
A) bureaucratic costs
B) transaction costs
C) complexity
D) politics

Accepted Answer

The answer of All of the following can impede management's...

Question 4

All but which of the following can impede management's designs to create synergies?
A) bureaucratic costs
B) transaction costs
C) complexity
D) simplicity

Accepted Answer

Simplicity would not impede management's designs to create synergies. Bureaucratic costs, transaction costs, and complexity can all create barriers and challenges in achieving synergies.

Question 5

The profit to be gained from buying a parent firm and selling off its portfolio piecemeal gives potential buyers a significant ________.
A) pre-sale profit
B) consolidation discount
C) diversification discount
D) competitive advantage

Accepted Answer

The potential to sell off a parent firm's portfolio piecemeal suggests that the firm may have experienced a diversification discount, meaning the value of the firm as a whole is less than the sum of its parts. This could provide significant profit opportunities for a potential buyer who could acquire the firm and sell off its assets individually. Options A and D are not relevant or accurate in this context, and while option B may be a factor in some mergers and acquisitions, it is not specifically mentioned in this scenario.

Question 6

Two processes can generate revenue-enhancement synergy: sharing resources and ________.
A) parenting advantage
B) transferring capabilities
C) learning curves
D) diversification

Accepted Answer

Transferring capabilities between two processes can help generate revenue-enhancement synergy by allowing the two processes to learn from each other and improve their overall performance. Sharing resources and diversification may also lead to synergy but are not specifically related to generating revenue enhancement. A parenting advantage refers to a larger company leveraging its resources and expertise to create competitive advantages for its subsidiaries, so it is not directly related to the given question about generating revenue enhancement synergy. Learning curves refer to the cost savings that come from learning-by-doing and do not necessarily involve synergy between different processes.

Question 7

Coke and Pepsi enjoy economies of scale in all but which of the following markets?
A) soft drinks
B) coffee beverages
C) noncarbonated beverages
D) bottled water

Accepted Answer

The question asks about markets in which Coke and Pepsi enjoy economies of scale. Economies of scale refer to the cost advantages that a firm experiences as its production increases. In the case of Coke and Pepsi, they have significant economies of scale in the production and distribution of soft drinks, noncarbonated beverages, and bottled water, as they are two of the largest beverage companies in the world. However, they do not have the same level of dominance in the coffee beverages market, which is much smaller and more fragmented, and therefore may not experience the same level of economies of scale.

Question 8

A special case of resource sharing that can create both cost savings and revenue-enhancement is ________ capabilities.
A) diversifying
B) divesting
C) consolidating
D) transferring

Accepted Answer

The answer of A special case of resource sharing that...

Question 9

In analyzing the data for the S&P 500 and S&P Midcap firms over an eight-year period, it was discovered that at the median level of diversification, performance is ________ than at low or high levels of diversification.
A) slightly lower
B) much lower
C) slightly higher
D) much higher

Accepted Answer

The answer of In analyzing the data for the S&P...

Question 10

Revenue-enhancement synergy exists when total sales are greater if two products are sold and distributed ________.
A) by cooperating firms
B) within the same business unit
C) by competing firms
D) within one firm

Accepted Answer

Revenue-enhancement synergy occurs when products are sold and distributed within one firm, leveraging combined strengths and market presence to increase total sales.

Question 11

A condition under which the joint output of two or more products within a single firm results in increased average costs is called ________.
A) parenting advantage
B) synergy
C) diseconomies of scope
D) economies of scope

Accepted Answer

Diseconomies of scope occur when producing multiple products within a single firm results in increased average costs due to factors such as coordination difficulties, complex management structure, or inefficient use of resources. This is the opposite of economies of scope, where producing multiple products within a single firm results in decreased average costs due to efficiencies in production, marketing, or distribution. Parenting advantage and synergy refer to potential benefits from corporate diversification, and are not related to the joint production of multiple products within a single firm.

Question 12

When the collective market value of a firm exceeds the independent market values of the firm's portfolio of business units, financial markets recognize the existence of a ________.
A) parenting advantage
B) separate firm advantage
C) parenting disadvantage
D) separate firm disadvantage

Accepted Answer

When the collective value of a firm's portfolio of business units is greater than their independent market values, it indicates that the parenting advantage is present. This means that the firm is creating more value through synergies and the coordination of its diverse business units than if each unit were operating independently as a separate firm.

Question 13

Diversification increases firm ________.
A) costs
B) simplicity
C) complexity
D) revenues

Accepted Answer

Diversification often leads to increased complexity within a firm due to the addition of new products, services, markets, or technologies, which requires more sophisticated management and coordination.

Question 14

The number of separate businesses a firm operates and the degree of ________ of those businesses increase a firm's level of diversification.
A) economy of scale
B) relatedness
C) diversity
D) management

Accepted Answer

The degree of relatedness of a firm's businesses determines how diversified the firm is. If a firm operates businesses that are related to each other, such as a clothing manufacturer owning a chain of retail stores, it is considered to have a high degree of relatedness and a higher level of diversification. If a firm operates businesses that are not related to each other, such as a food manufacturer owning a construction company, it is considered to have a low degree of relatedness and a lower level of diversification.

Question 15

________ is achieved when the joint cash flows of two or more collectively owned business units exceed the sum of cash flows that they would generate independently.
A) Parenting advantage
B) Synergy
C) Diversification
D) Economies of scope

Accepted Answer

The answer of ________ is achieved when the joint cash...

Question 16

Revenue-enhancement synergies generally arise from ________ and ________ opportunities.
A) bundling; joint selling
B) bundling; separate selling
C) separating; joint selling
D) separating; separate selling

Accepted Answer

Revenue-enhancement synergies typically come from combining the products or services and selling them together (bundling) or from sales collaborations (joint selling). Therefore, the best choice is A, as it contains both bundling and joint selling opportunities. The other answer choices do not include these opportunities, making them incorrect.

Question 17

Mutual gains may be derived from either ________ or ________ synergies.
A) cost savings; low revenue
B) high price; economy of scale
C) economy of scale; low price
D) cost savings; revenue-enhancement

Accepted Answer

Mutual gains are derived from synergies that either result in cost savings or revenue-enhancement. Option D includes both cost savings and revenue-enhancement, making it the best choice. Options A and B only include one out of the two types of synergies, while Option C includes a low price synergy which may not necessarily result in mutual gains.

Question 18

Revenue-enhancement synergy may result from a variety of tactics, including ________.
A) selling products singularly to capitalize on learning curve effects
B) specializing distribution channels
C) sharing complementary knowledge to encourage new product innovation
D) dispersing products into individual markets

Accepted Answer

Revenue-enhancement synergy often involves leveraging complementary knowledge between merging companies to foster innovation, including the development of new products.

Question 19

When examining the relationship between diversification and performance, it appears that diversification benefits shareholders up to a point, but tends to dissipate value at ________.
A) high levels of consolidation
B) high levels of diversification
C) low levels of consolidation
D) low levels of diversification

Accepted Answer

Research has shown that diversification benefits shareholders up to a point, but tends to dissipate value at high levels of diversification. At low levels of diversification, the benefits of diversification are still significant.

Question 20

The form of diversification in which the business units operated by a firm are highly related is called ________.
A) related diversification
B) unrelated diversification
C) vertical diversification
D) horizontal diversification

Accepted Answer

Related diversification refers to the strategy where a company operates multiple business units that are all related to its core business or share commonalities. This allows the company to leverage its expertise, knowledge, and resources across different units, reducing risks and maximizing synergies. Vertical diversification is a strategy where a company expands its business into different stages of the same industry's value chain, while horizontal diversification refers to expanding into unrelated businesses.

Quiz 7: Developing Corporate Strategy

When unrelated diversification is taken to the extreme and there are many unrelated businesses, the firm is referred to as a ________.

Investors can make reasonable estimates of a business unit's potential independent value by using ________ ratios.

All of the following can impede management's designs to create synergies except ________.

All but which of the following can impede management's designs to create synergies?

The profit to be gained from buying a parent firm and selling off its portfolio piecemeal gives potential buyers a significant ________.

Two processes can generate revenue-enhancement synergy: sharing resources and ________.

Coke and Pepsi enjoy economies of scale in all but which of the following markets?

A special case of resource sharing that can create both cost savings and revenue-enhancement is ________ capabilities.

In analyzing the data for the S&P 500 and S&P Midcap firms over an eight-year period, it was discovered that at the median level of diversification, performance is ________ than at low or high levels of diversification.

Revenue-enhancement synergy exists when total sales are greater if two products are sold and distributed ________.

A condition under which the joint output of two or more products within a single firm results in increased average costs is called ________.

When the collective market value of a firm exceeds the independent market values of the firm's portfolio of business units, financial markets recognize the existence of a ________.

Diversification increases firm ________.

The number of separate businesses a firm operates and the degree of ________ of those businesses increase a firm's level of diversification.

________ is achieved when the joint cash flows of two or more collectively owned business units exceed the sum of cash flows that they would generate independently.

Revenue-enhancement synergies generally arise from and opportunities.

Mutual gains may be derived from either or synergies.

Revenue-enhancement synergy may result from a variety of tactics, including ________.

When examining the relationship between diversification and performance, it appears that diversification benefits shareholders up to a point, but tends to dissipate value at ________.

The form of diversification in which the business units operated by a firm are highly related is called ________.