Question 1

The "conglomerate discount" occurs in large, highly diversified businesses and results from analysts not knowing how to value the vast array of large businesses with complex financial reports.

Accepted Answer

A) True 
 B)False

Question 2

PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a business that is:

Accepted Answer

A)  reducing vertical integration. 
B)  vertically integrated. 
C)  totally integrated. 
D)  horizontally integrated.

Question 3

Financial economies are cost savings realized through improved allocations of financial resources based on investments inside or outside the firm.

Accepted Answer

A) True 
 B)False

Question 4

Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G most likely uses the _____________ diversification strategy to create ___________.

Accepted Answer

A)  related constrained; operational relatedness 
B)  related linked; corporate relatedness 
C)  related constrained; corporate relatedness 
D)  related linked; operational relatedness

Question 5

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)  dominant

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Since the 1950s, U.S. government policy regarding antitrust concerns has remained constant.

Accepted Answer

A) True 
 B)False

Question 8

Google's diversification could lead the firm toward a related linked strategy and give the firm advantages in multipoint competition with competitors such as Facebook and Microsoft.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

Usually a company is classified as a single business firm when revenues generated by the dominant business are greater than ____ percent.

Accepted Answer

A)  99 
B)  95 
C)  90 
D)  70

Question 11

Hutchison Whampoa Limited (HWL) has businesses in ports and related services, telecommunications, property and hotels, retail and manufacturing, and energy and infrastructure. HWL makes no efforts to share activities or transfer core competencies among the businesses. HWL is following a strategy of__________diversification.

Accepted Answer

A)  dominant business 
B)  related constrained 
C)  related linked 
D)  unrelated

Question 12

Dragonfly, publishers of children's books, has purchased White Rabbit, another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different because Dragonfly produces children's literature, whereas White Rabbit focuses on child-level nonfiction scientific and nature topics. Which of the following statements is probably TRUE about this acquisition?

Accepted Answer

A)  This is a horizontal acquisition. 
B)  This is an example of virtual integration. 
C)  Dragonfly is beginning to build a conglomerate. 
D)  Economies of scope are unlikely to result from this acquisition.

Question 13

Which of the following is a value-reducing reason for diversification?

Accepted Answer

A)  Enhancing the strategic competitiveness of the entire company 
B)  Expanding the business portfolio in order to diversify managerial employment risk 
C)  Gaining market power relative to competitors 
D)  Conforming to antitrust regulation

Question 14

Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations:

Accepted Answer

A)  pay dividends annually. 
B)  keep free cash flows for investment in acquisitions. 
C)  distribute capital gains regularly. 
D)  increase managerial salaries.

Question 15

Research suggests that _______________has decreased while ___________has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century.

Accepted Answer

A)  forward vertical integration; backward vertical integration 
B)  backward vertical integration; forward vertical integration 
C)  related diversification; unrelated diversification 
D)  unrelated diversification; related diversification

Question 16

What are the five categories of businesses based on level of diversification?

Accepted Answer

The answer of What are the five categories of businesses...

Question 17

Disney (discussed in the Chapter 6 Opening Case) is an example of a company that was successful because its corporate strategy added value across its set of businesses above what the individual businesses could create individually.

Accepted Answer

A) True 
 B)False

Question 18

Operational relatedness is created by ___________ of ___________.

Accepted Answer

A)  sharing; core competencies 
B)  sharing; activities 
C)  transferring; core competencies 
D)  transferring; activities

Question 19

A firm uses a corporate-level diversification strategy for a variety of reasons, all of which have to do with ways to create value.

Accepted Answer

A) True 
 B)False

Question 20

Compared with related constrained firms, related linked firms share fewer resources and assets between their businesses, concentrating instead on transferring knowledge and core competencies between the businesses.

Accepted Answer

A) True 
 B)False

Exam 6: Corporate-Level Strategy

The "conglomerate discount" occurs in large, highly diversified businesses and results from analysts not knowing how to value the vast array of large businesses with complex financial reports.

PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a business that is:

Financial economies are cost savings realized through improved allocations of financial resources based on investments inside or outside the firm.

Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G most likely uses the ___ diversification strategy to create _.

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.

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

Since the 1950s, U.S. government policy regarding antitrust concerns has remained constant.

Google's diversification could lead the firm toward a related linked strategy and give the firm advantages in multipoint competition with competitors such as Facebook and Microsoft.

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

Usually a company is classified as a single business firm when revenues generated by the dominant business are greater than ____ percent.

Which of the following is a value-reducing reason for diversification?

Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations:

Research suggests that _____has decreased while _has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century.

What are the five categories of businesses based on level of diversification?

Disney (discussed in the Chapter 6 Opening Case) is an example of a company that was successful because its corporate strategy added value across its set of businesses above what the individual businesses could create individually.

Operational relatedness is created by _ of _.

A firm uses a corporate-level diversification strategy for a variety of reasons, all of which have to do with ways to create value.

Compared with related constrained firms, related linked firms share fewer resources and assets between their businesses, concentrating instead on transferring knowledge and core competencies between the businesses.