Ch 8 Quiz

Which of the following is an important appeal of a related diversification strategy?

Offers significant opportunities to strongly differentiate a company's product offerings from those of rivals

Is more likely to pass the cost-of-entry test and the capital gains test than unrelated diversification

Represents an effective way of capturing valuable financial fit benefits

Offers opportunities to transfer skills, expertise, technical know-how, or other capabilities from one business to another

Is typically more profitable than unrelated diversification, which is a major factor in helping related diversification pass the attractiveness test

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

expand into foreign markets where the firm currently does no business.

acquire companies in forward distribution channels (wholesalers and/or retailers).

acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups.

diversify into new industries that present opportunities to combine value chain activities of two or more businesses to lower costs.

diversify into those industries where the same kinds of driving forces and competitive forces prevail, thus allowing use of much the same competitive strategy in all of the businesses a company is in.

A "cash hog" type of business _______________________

generates cash flows that are too small to fully fund its operations and growth.

has good resource fit with a cash cow business and is essential to a diversified company's lineup of businesses.

generates cash flows exactly matching the demand for operations and growth.

is always a candidate for divestiture.

generates cash flows over and above its internal requirements.

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves

assessing whether...