Question

1.The more commonalities that can be formed between business units, the more beneficial it is for related diversification because:

a.there is less work to be done when entering the new industries.

b. there is less potential to realize profit-enhancing benefits.

c. there is more potential to realize profit-enhancing benefits.

d. it creates an efficient internal capital market.

2. To fund diversification initiatives, managers of companies use:

a. free cash flow.

b. funds from other business units.

c. investment loans from shareholders.

d. limited cash flow.

3. Companies provide customers with new products that are connected or related to their existing products to satisfy customers' needs for a complete package of related products. This is called product bundling. What is the goal of product bundling?

a.To offer customers lower prices for a premium set of products or services

b. To charge customers premium prices for a premium set of products or services

c. To charge customers premium prices for a set of products or services that minimally satisfies their needs

d. To increase profitability by offering a wider set of products without a specialized focus

4. Synergies arise when one or more of a diversified company's business units are able to lower costs because they can more effectively pool, share, and utilize expensive resources or capabilities. This is called:

a.economies of scope.

b. commonality.

c. product bundling.

d. economies of scale.

5. A diversification strategy commonly used when two or more companies agree to share resources to create new business in a growth industry is called a(n):

a.unrelated diversification.

b. acquisition.

c. joint venture.

d. internal new venture

6. What are the advantages of pursuing an unrelated diversification strategy over a related diversification strategy?

a.Functional competencies would be useful in many different industries.

b. The company doesn't need coordination between business units.

c. There is greater coordination between business units.

d. There are higher bureaucratic costs.

Answer 1

1. C. There is more potential to realize profit-enhancing benefits is the reason because of which the more commonalities that can be formed between business units, the more beneficial it is for related diversification. Whereas the remaining ones are not valid reasons in this context.

2. A. Free cash flow is something that managers of companies use to fund diversification initiatives. Whereas the remaining ones are not applicable in this context.

3. A. To offer customers lower prices for a premium set of products or services is the goal of product bundling. Whereas the remaining ones are not goals of product bundling.

4. A. Economies of scope is something that this is called. When an organization is able to leverage existing resources across business units, it reduces the cost structure across both units.

5. C. Joint venture is the term used for a diversification strategy commonly used when two or more companies agree to share resources to create new business in a growth industry. Whereas the remaining terms are not appropriate in this context.

6. B. The company doesn't need coordination between business units is the advantage of pursuing an unrelated diversification strategy over a related diversification strategy. Whereas the remaining can't be considered as advantages in this context.

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