MGMT 425 COMPREHENSIVE ANSWERS AND
QUESTIONS SET A+
✔✔ENTERING new markets through acquisitions of companies with new products is
not risk-free, especially if acquisition becomes a substitute for:
a. market discipline.
b. innovation.
c. risk analysis.
d. international diversification. - ✔✔B
✔✔WHICH of the following is NOT one of the primary reasons many pharmaceutical
firms use acquisitions?
a. entering markets quickly
b. overcoming the high costs of internal product development
c. improving predictability of returns on investment.
d. extending patent rights on developed pharmaceuticals - ✔✔D
✔✔THE Curvilinear relationship of corporate performance and diversification indicates
that:
a. dominant-business corporate strategies tend to be higher
performing than related constrained or unrelated business strategies.
b. the highest performing business strategy is related constrained diversification.
c. the less related the businesses acquired, the higher performing the organization.
d. none of the strategies consistently outperforms the others. - ✔✔B
✔✔FREE cash flows are:
a. liquid financial assets for which investments in current businesses are no longer
economically viable.
b. liquid financial assets which 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 that have been distributed to shareholders which are taxed as capital
gains. - ✔✔A
,✔✔SUCCESSFUL unrelated diversification through restructuring is typically
accomplished by:
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 pre-established ideas of how the
firm's portfolio should be developed. - ✔✔A
✔✔FIRMS Practicing unrelated diversification can make better capital allocations to its
subsidiary businesses than the external capital market can for all the following reasons
EXCEPT:
a. corporate headquarters can change managerial incentives.
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. the firm can make strategic changes in its subsidiary businesses. - ✔✔C
✔✔FIRMS Following an unrelated diversification strategy can reduce their overall risk
when:
a. resources are allocated among many businesses with different risk profiles.
b. they limit their growth to acquiring only successful companies.
c. synergies are developed among the business units.
d. management refuses to purchase businesses outside their sphere of expertise or
knowledge. - ✔✔A
✔✔_______________ acquisitions to increase market power require that the firm have
a diversification strategy.
a. unrelated
b. related
c. dominant-business
d. single business - ✔✔B
✔✔XANADU, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same
industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis
to Ireland. What is the major threat to Xanadu's plant to transfer competencies from
itself to the Irish firm?
a. The St. Louis manager may quit Xanadu in order to remain in St. Louis.
b. American pharmaceutical manufacturing techniques may not transfer to Ireland.
c. Irish managers will refuse to take direction from a foreign executive.
d. The cost of transferring U.S. managers overseas is usually not cost-effective. - ✔✔A
, ✔✔IN Related linked diversified firms, are a complex set of resources that link the
different businesses through managerial and technological knowledge, experience, and
expertise.
a. corporate core competencies
b. strategies
c. support activities
d. intangible assets - ✔✔A
✔✔WHICH of the following is TRUE?
a. Conglomerates are a fading presence on the U.S. business scene, but are common
in emerging markets.
b. Unrelated diversified firms seek to create value through economies of scope.
c. The sharing of intangible resources, such as know-how, between firms is a type of
operational sharing in related diversifications.
d. Related linked firms share more tangible resources and activities between
businesses than do related constrained firms. - ✔✔D
✔✔THE Basic types of operational economies through which firms seek value from
economies of scope are:
a. synergies between internal and external capital markets.
b. the leveraging of tangible resources.
c. the sharing of primary and support activities.
d. joint ventures and outsourcing. - ✔✔C
✔✔FIRMS Seek to create value from economies of scope through all of the following
EXCEPT:
a. activity sharing.
b. skill transfers.
c. transfers of corporate core competencies.
d. de-integration. - ✔✔D
✔✔FIRMS That have selected a related diversification corporate-level strategy seek to
exploit:
a. control shared among business-unit managers.
b. economies of scope between business units.
c. the favorable demand of buyers.
d. market power. - ✔✔B
✔✔WHICH of the following reasons for diversification is most likely to increase the firm's
value?
a. increasing managerial compensation
b. reducing costs through business restructuring
c. taking advantage of changes in tax laws
d. conforming to antitrust regulation - ✔✔B
QUESTIONS SET A+
✔✔ENTERING new markets through acquisitions of companies with new products is
not risk-free, especially if acquisition becomes a substitute for:
a. market discipline.
b. innovation.
c. risk analysis.
d. international diversification. - ✔✔B
✔✔WHICH of the following is NOT one of the primary reasons many pharmaceutical
firms use acquisitions?
a. entering markets quickly
b. overcoming the high costs of internal product development
c. improving predictability of returns on investment.
d. extending patent rights on developed pharmaceuticals - ✔✔D
✔✔THE Curvilinear relationship of corporate performance and diversification indicates
that:
a. dominant-business corporate strategies tend to be higher
performing than related constrained or unrelated business strategies.
b. the highest performing business strategy is related constrained diversification.
c. the less related the businesses acquired, the higher performing the organization.
d. none of the strategies consistently outperforms the others. - ✔✔B
✔✔FREE cash flows are:
a. liquid financial assets for which investments in current businesses are no longer
economically viable.
b. liquid financial assets which 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 that have been distributed to shareholders which are taxed as capital
gains. - ✔✔A
,✔✔SUCCESSFUL unrelated diversification through restructuring is typically
accomplished by:
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 pre-established ideas of how the
firm's portfolio should be developed. - ✔✔A
✔✔FIRMS Practicing unrelated diversification can make better capital allocations to its
subsidiary businesses than the external capital market can for all the following reasons
EXCEPT:
a. corporate headquarters can change managerial incentives.
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. the firm can make strategic changes in its subsidiary businesses. - ✔✔C
✔✔FIRMS Following an unrelated diversification strategy can reduce their overall risk
when:
a. resources are allocated among many businesses with different risk profiles.
b. they limit their growth to acquiring only successful companies.
c. synergies are developed among the business units.
d. management refuses to purchase businesses outside their sphere of expertise or
knowledge. - ✔✔A
✔✔_______________ acquisitions to increase market power require that the firm have
a diversification strategy.
a. unrelated
b. related
c. dominant-business
d. single business - ✔✔B
✔✔XANADU, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same
industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis
to Ireland. What is the major threat to Xanadu's plant to transfer competencies from
itself to the Irish firm?
a. The St. Louis manager may quit Xanadu in order to remain in St. Louis.
b. American pharmaceutical manufacturing techniques may not transfer to Ireland.
c. Irish managers will refuse to take direction from a foreign executive.
d. The cost of transferring U.S. managers overseas is usually not cost-effective. - ✔✔A
, ✔✔IN Related linked diversified firms, are a complex set of resources that link the
different businesses through managerial and technological knowledge, experience, and
expertise.
a. corporate core competencies
b. strategies
c. support activities
d. intangible assets - ✔✔A
✔✔WHICH of the following is TRUE?
a. Conglomerates are a fading presence on the U.S. business scene, but are common
in emerging markets.
b. Unrelated diversified firms seek to create value through economies of scope.
c. The sharing of intangible resources, such as know-how, between firms is a type of
operational sharing in related diversifications.
d. Related linked firms share more tangible resources and activities between
businesses than do related constrained firms. - ✔✔D
✔✔THE Basic types of operational economies through which firms seek value from
economies of scope are:
a. synergies between internal and external capital markets.
b. the leveraging of tangible resources.
c. the sharing of primary and support activities.
d. joint ventures and outsourcing. - ✔✔C
✔✔FIRMS Seek to create value from economies of scope through all of the following
EXCEPT:
a. activity sharing.
b. skill transfers.
c. transfers of corporate core competencies.
d. de-integration. - ✔✔D
✔✔FIRMS That have selected a related diversification corporate-level strategy seek to
exploit:
a. control shared among business-unit managers.
b. economies of scope between business units.
c. the favorable demand of buyers.
d. market power. - ✔✔B
✔✔WHICH of the following reasons for diversification is most likely to increase the firm's
value?
a. increasing managerial compensation
b. reducing costs through business restructuring
c. taking advantage of changes in tax laws
d. conforming to antitrust regulation - ✔✔B
