chapter 6 Flashcards
Which of the following diversification strategies involves a complete combination into one new company?
A) Acquisition
B) Strategic Alliance
C) Merger
D) Joint Venture
c
What is the primary justification for diversification initiatives in business?
A) Increased market share
B) Creation of value for shareholders
C) Expansion into international markets
D) Improvement of operational efficiency
B
In which of the following strategies does one company buy and control another company?
A) Merger
B) Acquisition
C) Strategic Alliance
D) Joint Venture
B
Which diversification strategy involves independent companies working together without forming a new entity?
A) Merger
B) Acquisition
C) Strategic Alliance
D) Joint Venture
C
What is the primary characteristic of a joint venture?
A) One company buys another
B) Companies create a new company together
C) Companies combine to form a new single entity
D) Independent companies operate separately
B
All diversification moves, including those involving mergers and acquisitions, erode
performance.
F. Not all diversification moves, including those involving mergers and acquisitions, erode
performance.
Diversification initiatives must be justified by the creation of value for shareholders.
T
Diversification initiatives include all of the following except
A. mergers and
acquisitions.
B. strategic
alliances.
C. shareholder
development.
D. joint
ventures.
C
What is one of the key questions for a corporation considering diversification?
A) How much profit should each business generate?
B) What businesses should a corporation compete in?
C) How should a corporation reduce operational costs?
D) How can the corporation increase its brand awareness?
B
Another key question for a corporation considering diversification is:
A) How can the corporation expand internationally?
B) How many businesses should a corporation have?
C) How can a corporation increase its market share?
D) What is the best pricing strategy for each business?
B
How should businesses be managed in a diversified corporation?
A) Independently without collaboration
B) In a way that creates more value than if they were freestanding units
C) By reducing competition between them
D) By focusing only on cost-cutting measures
B
What must diversification initiatives achieve in order to be successful?
A) A reduction in employee turnover
B) Increased market share in every industry
C) Creation of value for shareholders
D) Cost minimization across all businesses
C
What does the term “synergy” originate from?
A) Latin for “profit sharing”
B) Greek for “working together”
C) English for “collaboration”
D) Italian for “business expansion”
B
What do synergies enable businesses to do in the context of diversification?
A) Create more competition
B) Create and claim more value as part of the same corporate entity
C) Limit their operational costs
D) Operate independently without collaborating
B
In a diversified corporation, the value of a stand-alone business is:
A) Always greater than its value as part of a corporate entity
B) Greater when it operates alone rather than within a corporation
C) Greater as part of the corporate entity than as a stand-alone business
D) Irrelevant to the corporation’s value
C
How does the value of a corporate entity change when it includes a stand-alone business?
A) It decreases because it adds unnecessary complexity
B) It stays the same as without the stand-alone business
C) It is greater with the stand-alone business than without it
D) It becomes harder to manage
c
Proctor and Gamble is a large multinational organization that has many business sharing
distribution resources. Diversification strategies take advantage of the __________ that exist in
their organization.
A. costs
B. employees
C. synergies
D. discontinuities
C
Which type of synergy benefits from horizontal relationships, where companies share intangible and tangible resources?
A) Related Businesses
B) Unrelated Businesses
C) Vertical Integration
D) Market Diversification
A
Procter & Gamble leveraging shared distribution resources is an example of which type of synergy?
A) Horizontal synergy
B) Related Businesses synergy
C) Unrelated Businesses synergy
D) Vertical synergy
B
Which of the following is NOT a benefit of related businesses synergy?
A) Shared distribution resources
B) Shared intangible and tangible resources
C) Expertise and support from the corporate office
D) Leveraging common capabilities in the same industry
C
What is a key characteristic of unrelated businesses synergy?
A) Companies operate in similar or closely related industries
B) Companies benefit from hierarchical relationships and corporate office support
C) Companies share tangible resources like distribution channels
D) Companies have no central office to provide resources
B
In unrelated businesses, companies can still benefit from the corporate office by leveraging which support activities?
A) Distribution channels and marketing strategies
B) R&D and product design
C) Information systems and HR practices
D) Direct customer relationships and brand management
c
Which type of synergy involves companies diversifying into industries that are completely different from their core business?
A) Related Businesses synergy
B) Vertical integration
C) Unrelated Businesses synergy
D) Market Penetration strategy
c
What is economies of scope about?
A) Cost savings from increasing the scale of production in a single industry
B) Cost savings from leveraging core competencies or sharing activities among businesses
C) Cost savings from reducing the number of employees
D) Cost savings from outsourcing production to third parties
B