Chapter 8 pt 2 - Test 2

Question 1

Types of Corporate Diversification

Answer 1

• Single business
• Dominant business
• Related diversification
• Unrelated diversification (conglomerate)

Question 2

Unrelated diversification (conglomerate)

Answer 2

no businesses share competencies

Question 3

Single business

Answer 3

low level of diversification

Question 4

Dominant business

Answer 4

additional business activity pursued

Question 5

Related diversification

Answer 5

• Constrained: all businesses share competencies
• Linked: some businesses share competencies

Question 6

How Diversification Can Enhance Firm Performance

Answer 6

• Provides economies of scale (reduces costs)
• Exploits economies of scope (increases value)
• Reduces costs and increases value

Question 7

Restructuring

Answer 7

Reorganizing and divesting business units and
activities

Question 8

BCG growth-share matrix

Answer 8

Helpful restructuring tool that guides portfolio planning and each category warrants a different strategy

Question 9

High Market Growth, Low Market Share (BCG)

Answer 9

Question Mark
- Earnings: Low, unstable, or growing
- Cash Flow: Negative
- Strategy: Increase market share or harvest/divest

Question 10

High Market Growth, High Market Share (BCG)

Answer 10

Star
- Earnings: High, stable, or growing
- Cash Flow: Neutral
- Strategy: Hold or invest for growth

Question 11

Low Market Growth, Low Market Share (BCG)

Answer 11

Dog
- Earnings: Low, unstable
- Cash Flow: Neutral or Negative
- Strategy: Harvest, divest

Question 12

Low Market Growth, High Market Share (BCG)

Answer 12

Cash cow
- Earnings: High, stable
- Cash Flow: High, stable
- Strategy: Hold

Question 13

Internal Capital Markets

Answer 13

Can be a source of value creation in diversification
strategy