Question 1

The three tests for judging whether a particular diversification move can create value for shareholders are:

Accepted Answer

A)   the attractiveness test, the profitability test, and the shareholder value test.
B)   the strategic fit test, the competitive advantage test, and the return-on-investment test.
C)   the resource fit test, the profitability test, and the shareholder value test.
D)   the attractiveness test, the cost-of-entry test, and the better-off test.
E)   the shareholder value test, the cost-of-entry test, and the profitability test.F) A) and C)
G) A) and B)

Question 2

Relative market share is:

Accepted Answer

A)   calculated by dividing a company's percentage share of total industry sales volume by the percentage share held by its largest rival.
B)   calculated by adjusting a company's revenue share up or down by a factor proportional to whether their quality/customer service factors are above/below industry averages.
C)   calculated by dividing a company's market share (based on dollar volume)  by the industry-average market share.
D)   particularly useful in identifying cash cows, which have big relative market shares (above 1.0) , and cash hogs, which have low relative market shares (below 0.5) .
E)   calculated by subtracting the industry-average market share (based on revenue)  from the company's market share to highlight relative share above/below the industry average. This amount is a better indicator of a business's competitive strength than is just looking at the firm's market share percentage.F) A) and B)
G) All of the above

Question 3

The businesses in a diversified company's lineup exhibit good resource fit when:

Accepted Answer

A)   the resource requirements of each business exactly match the resources the company has available.
B)   individual businesses have matching resource requirements at points along their value chain and add to a company's overall resource strengths and when solid parenting capabilities exist without spreading itself too thin.
C)   each business generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent.
D)   each business unit produces sufficient cash flows over and above what is needed to build and maintain the business, thereby providing the parent company with enough cash to pay shareholders a generous and steadily increasing dividend.
E)   there are enough cash cow businesses to support the capital requirements of the cash hog businesses.F) B) and C)
G) All of the above

Question 4

Explain the difference between a cash cow business and a cash hog business.

Accepted Answer

A cash cow business generates cash flows...

Question 5

Retrenching to a narrower diversification base can be attractive or advisable EXCEPT when:

Accepted Answer

A)   certain businesses have questionable long-term potential.
B)   a diversified company has businesses that have little or no strategic or resource fits with the "core" businesses that management wishes to concentrate on.
C)   certain business units are weakly positioned and show poor prospects for providing a good return on investment.
D)   market conditions in a once-attractive business have badly deteriorated.
E)   business units are cash cows with promising futures.F) B) and C)
G) All of the above

Question 6

Which of the following is NOT a good candidate for divestiture in a corporate restructuring effort?

Accepted Answer

A)   Business units that lack strategic fit with the businesses to be retained
B)   Weak performers
C)   Businesses in unattractive industries
D)   Businesses that are cash hogs or that lack other types of resource fit
E)   Businesses compatible with the company's revised diversification strategyF) A) and E)
G) A) and D)

Question 7

There is ample room for companies to customize their diversification strategies and be defined as being either narrowly or broadly diversified,and when combination related-unrelated diversification strategy options are adopted,they have particular appeal to:

Accepted Answer

A)   those companies with a mix of valuable competitive assets, covering the spectrum from generalized to specialized resources and capabilities.
B)   those large multibusiness firms, sometimes called conglomerates, because they have a unique capability designed to stabilize earnings.
C)   companies with a portfolio of product choices for buyer-related behavior.
D)   corporate managers who take on risks without performing due diligence.
E)   corporate managers who want to play the corporate parent role without fiduciary responsibility.F) B) and D)
G) B) and C)

Question 8

One strategic fit based approach to related diversification would be to:

Accepted Answer

A)   diversify into new industries that present opportunities to transfer specialized expertise, technological know-how, or other valuable resources and capabilities from one business's value chain to another's.
B)   diversify into foreign markets where the firm has unrelated businesses.
C)   acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups.
D)   acquire companies in forward distribution channels (wholesalers and/or retailers) .
E)   expand into foreign markets where the firm currently does no business.F) A) and C)
G) C) and D)

Question 9

Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities:

Accepted Answer

A)   to prevent the transfer of expertise or technology or capabilities from one business to another.
B)   to independently preserve common brand names from cross-business usage.
C)   to increase costs by combining the performance of the related value chain activities of different businesses.
D)   for cross-business collaboration to build valuable new resource strengths and competitive capabilities.
E)   to maintain business value chain activities separate and apart from one business to another to protect company independence.F) A) and E)
G) A) and C)

Question 10

As a rule,the key indicators of industry attractiveness,for all the industries represented in a diversified company's business portfolio,should NOT be measured on such attractiveness factors as:

Accepted Answer

A)   market size and projected growth rate.
B)   emerging opportunities and threats, and the intensity of competition.
C)   resource requirements and the presence of cross-industry strategic fits.
D)   seasonal and cyclical factors, industry profitability, and whether an industry has significant social, political, regulatory, and environmental problems.
E)   the utility of the products for consumers from all age-groups.F) B) and C)
G) A) and E)

Question 11

Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed,what are the four main strategic paths it can employ to improve the performance of its overall business lineup?

Accepted Answer

The four main strategic options for dive...

Question 12

With a strategy of unrelated diversification,an acquisition is deemed to have potential if it:

Accepted Answer

A)   can achieve at least existing profit margins into the near future.
B)   has the opportunity to generate positive buzz in the industry, even if it may not be able to contribute to the parent firm's bottom line
C)   can pass the industry attractiveness test and the cost-of-entry test, and if it has good prospects for profit growth.
D)   can pass at least the industry attractiveness test if not the cost of entry test.
E)   can add economic value for managers.F) A) and E)
G) A) and B)

Question 13

When a corporate parent creates an independent company and divests it by distributing to its stockholders new shares in the business,it is called:

Accepted Answer

A)   a spinoff.
B)   a wholly-owned subsidiary.
C)   a functional divesture.
D)   fully-diluted stock.
E)   a restructure.F) A) and B)
G) All of the above

Question 14

Diversification becomes a relevant strategic option for a company EXCEPT when it:

Accepted Answer

A)   spots opportunities to expand into industries whose technologies and products complement its present business.
B)   leverages existing resources and capabilities by expanding into industries where these same resource strengths are key success factors and valuable competitive assets.
C)   has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such businesses.
D)   can open up new avenues for reducing costs by diversifying into closely related businesses.
E)   expands into additional businesses that unlock possibilities for a comprehensive cost enhancement strategy.F) A) and D)
G) B) and D)

Question 15

The strategic options to improve a diversified company's overall performance do NOT include which of the following categories of actions?

Accepted Answer

A)   Broadening the company's business scope by making new acquisitions in new industries
B)   Increasing dividend payments to shareholders and/or repurchasing shares of the company's stock
C)   Restructuring the company's business lineup with a combination of divestitures and acquisitions to put a whole new face on the company's business makeup
D)   Pursuing multinational diversification and striving to globalize the operations of several of the company's business units
E)   Divesting weak-performing businesses and retrenching to a narrower base of business operationsF) A) and E)
G) B) and E)

Question 16

What makes related diversification an attractive strategy?

Accepted Answer

A)   The ability to broaden the company's product line
B)   The opportunity to convert cross-business strategic fit into competitive advantage over business rivals whose operations don't offer comparable strategic fit benefits
C)   The potential for improving the stability of the company's financial performance
D)   The ability to serve a broader spectrum of buyer needs
E)   The added capability it provides in overcoming the barriers to entering foreign marketsF) A) and D)
G) B) and E)

Question 17

When discussing "economies of scope," it involves understanding that they:

Accepted Answer

A)   stem from the cost-saving efficiencies of operating over a wider geographic area.
B)   have to do with the cost-saving efficiencies of distributing a firm's product through many different distribution channels simultaneously.
C)   stem from cost-saving strategic fits along the value chains of related businesses.
D)   refer to the cost savings that flow from operating across all or most of an industry's value chain activities.
E)   arise from the cost-saving efficiencies of having a wide product line and offering customers a big selection of models and styles to choose from.F) A) and E)
G) D) and E)

Question 18

Which of the following is NOT a part of checking a diversified company's business units for cross-business competitive advantage potential?

Accepted Answer

A)   Ascertaining the extent to which business units have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs
B)   Ascertaining the extent to which business units have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another
C)   Ascertaining the extent to which business units are making maximum use of the parent company's competitive advantages
D)   Ascertaining the extent to which business units have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources
E)   Ascertaining the extent to which business units present opportunities to share use of a well-respected brand nameF) A) and E)
G) All of the above

Question 19

Under what circumstances might an already diversified company choose to pursue corporate restructuring?

Accepted Answer

Performing radical surgery or restructur...

Question 20

Checking a diversified company's business portfolio for the competitive advantage potential of cross-business strategic fits does NOT involve ascertaining the extent to which sister business units:

Accepted Answer

A)   have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs.
B)   have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another.
C)   have opportunities to share use of a well-respected brand name.
D)   have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources.
E)   are cash cows and which ones are cash hogs.F) A) and C)
G) A) and E)

Exam 8: Corporate Strategy

When discussing "economies of scope," it involves understanding that they:

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The three tests for judging whether a particular diversification move can create value for shareholders are:

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Under what circumstances might an already diversified company choose to pursue corporate restructuring?

Correct AnswerverifiedPerforming radical surgery or restructur...View AnswerShow Answer

With a strategy of unrelated diversification,an acquisition is deemed to have potential if it:

Correct AnswerverifiedShow Answer

Explain the difference between a cash cow business and a cash hog business.

Correct AnswerverifiedA cash cow business generates cash flows...View AnswerShow Answer

Which of the following is NOT a part of checking a diversified company's business units for cross-business competitive advantage potential?

Correct AnswerverifiedShow Answer

Diversification becomes a relevant strategic option for a company EXCEPT when it:

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Retrenching to a narrower diversification base can be attractive or advisable EXCEPT when:

Correct AnswerverifiedShow Answer

Relative market share is:

Correct AnswerverifiedShow Answer

The strategic options to improve a diversified company's overall performance do NOT include which of the following categories of actions?

Correct AnswerverifiedShow Answer

Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed,what are the four main strategic paths it can employ to improve the performance of its overall business lineup?

Correct AnswerverifiedThe four main strategic options for dive...View AnswerShow Answer

One strategic fit based approach to related diversification would be to:

Correct AnswerverifiedShow Answer

There is ample room for companies to customize their diversification strategies and be defined as being either narrowly or broadly diversified,and when combination related-unrelated diversification strategy options are adopted,they have particular appeal to:

Correct AnswerverifiedShow Answer

Checking a diversified company's business portfolio for the competitive advantage potential of cross-business strategic fits does NOT involve ascertaining the extent to which sister business units:

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Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities:

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What makes related diversification an attractive strategy?

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As a rule,the key indicators of industry attractiveness,for all the industries represented in a diversified company's business portfolio,should NOT be measured on such attractiveness factors as:

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The businesses in a diversified company's lineup exhibit good resource fit when:

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Which of the following is NOT a good candidate for divestiture in a corporate restructuring effort?

Correct AnswerverifiedShow Answer

When a corporate parent creates an independent company and divests it by distributing to its stockholders new shares in the business,it is called:

Correct AnswerverifiedShow Answer

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Performing radical surgery or restructur...
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A cash cow business generates cash flows...
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The four main strategic options for dive...
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