Question 1

A significant benefit of an internal capital market is that corporate headquarters has access to detailed and accurate information regarding the performance of the company's portfolio and can thus make better capital allocation decisions.

Accepted Answer

A) True 
 B)False

Question 2

Firms use corporate-level diversification strategies for all the following reasons EXCEPT:

Accepted Answer

A)   value-creating.
B)   value-neutral.
C)   value-reducing.
D)   value-diversifying.E) A) and B)
F) A) and C)

Question 3

Operational relatedness is created by __________ of __________.

Accepted Answer

A)   sharing; core competencies
B)   sharing; activities
C)   transferring; core competencies
D)   transferring; activitiesE) A) and B)
F) A) and C)

Question 4

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over diversify?

Accepted Answer

A)   Market for corporate control
B)   Board of directors
C)   Surveillance technologies
D)   Executive compensation practicesE) A) and C)
F) B) and D)

Question 5

Market power exists when a firm is able to sell its products above the existing competitive level or reduce the costs of its primary and support activities below the competitive level, or both.

Accepted Answer

A) True 
 B)False

Question 6

Synergy exists when the value created by business units working together exceeds the value that those same units create working independently.

Accepted Answer

A) True 
 B)False

Question 7

It can be difficult for investors to identify the value created by a firm as it shares activities and transfers core competencies.

Accepted Answer

A) True 
 B)False

Question 8

In large diversified firms, corporate headquarters distributes capital to its businesses to create value for the overall corporation.

Accepted Answer

A) True 
 B)False

Question 9

Antitrust regulation, tax laws, and low performance are all value-neutral reasons why firms engage in diversification.

Accepted Answer

A) True 
 B)False

Question 10

Firms using a related diversification strategy may gain market power when successfully using their related constrained or related linked strategy.

Accepted Answer

A) True 
 B)False

Question 11

A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT:

Accepted Answer

A)   corporate headquarters can allocate capital according to more specific criteria than is possible with external market allocations.
B)   corporate headquarters has more complete information about the subsidiary businesses than the external capital market.
C)   the firm can acquire other firms with innovative products instead of allocating capital to research and development.
D)   corporate headquarters can more effectively discipline underperforming management teams through resource allocation than can the external market.E) A) and D)
F) A) and C)

Question 12

Companies creating financial economies through restructuring typically focus on high-technology businesses primarily because these firms are dependent on human resources.

Accepted Answer

A) True 
 B)False

Question 13

An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops:

Accepted Answer

A)   through reduced disclosure to outside parties.
B)   by the ability to not report losses to investors.
C)   by the ability to increase pay to managers without shareholders being aware.
D)   through the ability to reinvest cash in dividends to shareholders.E) None of the above
F) A) and B)

Question 14

Certain regulatory changes (such as antitrust regulation and tax laws)  create incentives or disincentives for diversification that:

Accepted Answer

A)   create value.
B)   reduce value.
C)   are value-neutral.
D)   are managerial motives to diversify.E) B) and C)
F) A) and D)

Question 15

In a money-making effort, a small private university has decided to institute consulting services using its business faculty as consultants whose services would be sold to clients.This university is attempting to use its faculty to gain economies of scope.

Accepted Answer

A) True 
 B)False

Question 16

Successful diversification is expected to increase variability in the firm's profitability as earnings are generated from different business units.

Accepted Answer

A) True 
 B)False

Question 17

Free cash flows are:

Accepted Answer

A)   liquid financial assets for which investments in current businesses are no longer economically viable.
B)   liquid financial assets that for tax purposes must be reinvested in the firm if not distributed as dividends to shareholders.
C)   the profits resulting after a restructured firm has been sold.
D)   dividends distributed to shareholders that are taxed as capital gains.E) All of the above
F) A) and B)

Question 18

Successful unrelated diversification through restructuring is typically accomplished by:

Accepted Answer

A)   focusing on mature, low-technology businesses.
B)   a "random walk" of good luck in picking firms to buy.
C)   seeking out high technology firms in high-growth industries.
D)   a top management team that is not constrained by preestablished ideas of how the firm's portfolio should be developed.E) A) and B)
F) A) and C)

Question 19

Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a single market into several product markets and, most commonly, into several businesses.

Accepted Answer

A) True 
 B)False

Question 20

The Publicis Groupe uses the digital technology from its digital business to enhance the advertising products in its advertising group.This sharing of activities is characteristic of the __________ diversification strategy.

Accepted Answer

A)   related constrained
B)   related linked
C)   unrelated
D)   dominantE) B) and C)
F) A) and B)

Exam 6: Corporate-Level Strategy

Synergy exists when the value created by business units working together exceeds the value that those same units create working independently.

Correct AnswerverifiedShow Answer

Market power exists when a firm is able to sell its products above the existing competitive level or reduce the costs of its primary and support activities below the competitive level, or both.

Correct AnswerverifiedShow Answer

In a money-making effort, a small private university has decided to institute consulting services using its business faculty as consultants whose services would be sold to clients.This university is attempting to use its faculty to gain economies of scope.

Correct AnswerverifiedShow Answer

An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops:

Correct AnswerverifiedShow Answer

Successful unrelated diversification through restructuring is typically accomplished by:

Correct AnswerverifiedShow Answer

Companies creating financial economies through restructuring typically focus on high-technology businesses primarily because these firms are dependent on human resources.

Correct AnswerverifiedShow Answer

Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a single market into several product markets and, most commonly, into several businesses.

Correct AnswerverifiedShow Answer

Certain regulatory changes (such as antitrust regulation and tax laws) create incentives or disincentives for diversification that:

Correct AnswerverifiedShow Answer

The Publicis Groupe uses the digital technology from its digital business to enhance the advertising products in its advertising group.This sharing of activities is characteristic of the __________ diversification strategy.

Correct AnswerverifiedShow Answer

Firms use corporate-level diversification strategies for all the following reasons EXCEPT:

Correct AnswerverifiedShow Answer

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over diversify?

Correct AnswerverifiedShow Answer

In large diversified firms, corporate headquarters distributes capital to its businesses to create value for the overall corporation.

Correct AnswerverifiedShow Answer

Successful diversification is expected to increase variability in the firm's profitability as earnings are generated from different business units.

Correct AnswerverifiedShow Answer

A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT:

Correct AnswerverifiedShow Answer

A significant benefit of an internal capital market is that corporate headquarters has access to detailed and accurate information regarding the performance of the company's portfolio and can thus make better capital allocation decisions.

Correct AnswerverifiedShow Answer

Firms using a related diversification strategy may gain market power when successfully using their related constrained or related linked strategy.

Correct AnswerverifiedShow Answer

It can be difficult for investors to identify the value created by a firm as it shares activities and transfers core competencies.

Correct AnswerverifiedShow Answer

Operational relatedness is created by __________ of __________.

Correct AnswerverifiedShow Answer

Antitrust regulation, tax laws, and low performance are all value-neutral reasons why firms engage in diversification.

Correct AnswerverifiedShow Answer

Free cash flows are:

Correct AnswerverifiedShow Answer

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Operational relatedness is created by of .

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