MGCR 423 FINAL EXAM QUESTIONS WITH VERIFIED
ANSWERS
Corporate-level core competencies - Answers - Are complex sets of resources and
capabilities that link different businesses, primarily through managerial and
technological knowledge, experience, and expertise.
Corporate-level strategy - Answers - Specifies actions a firm takes to gain a competitive
advantage by selecting and managing a group of different businesses competing in
different product markets.
Economies of scope - Answers - Are cost savings a firm creates by successfully sharing
resources and capabilities or transferring one or more corporate-level core
competencies that were developed in one of its businesses to another of its businesses.
Financial economies - Answers - Are cost savings realized through improved allocations
of financial resources based on investments inside or outside the firm.
Market power - Answers - Exists when a firm is able to sell its products above the
existing competitive level or to reduce the costs of its primary and support activities
below the competitive level, or both.
Multipoint competition - Answers - Exists when two or more diversified firms
simultaneously compete in the same product areas or geographical markets.
Synergy - Answers - Exists when the value created by business units working together
exceeds the value that those same units create working independently.
Acquisition - Answers - A strategy through which one firm buys a controlling, or 100
percent, interest in another firm with the intent of making the acquired firm a subsidiary
business within its portfolio.
Takeover - Answers - A special type of acquisition where the target firm does not solicit
the acquiring firm's bid; thus, these are unfriendly acquisitions.
Restructuring - Answers - A strategy through which a firm changes its set of businesses
or its financial structure.
Merger - Answers - A strategy through which two firms agree to integrate their
operations on a relatively coequal basis.
, Acquisitions can contribute to a firm's competitiveness if they have the following
attributes: - Answers - 1. The acquired firm has assets or resources that are
complementary to the acquiring firm's core business.
2. The acquisition is friendly.
3. The acquiring firm conducts effective due diligence to select target firms and evaluate
the target firm's health (financial, cultural, and human resources).
4. The acquiring firm has financial slack (cash or a favorable debt position).
5. The merged firm maintains low to moderate debt position.
6. The acquiring firm has a sustained and consistent emphasis on R&D and innovation.
7. The acquiring firm manages change well and is flexible and adaptable.
The seven reasons firms engage in an acquisition strategy are: - Answers - 1. Increased
market power
2. Overcoming entry barriers
3. Cost of new product development and increasing speed to market
4. Lower risk compared to developing new products
5. Increased diversification
6. Reshaping the firm's competitive scope
7. Learning and developing new capabilities
The seven problems in achieving a successful acquisition are: - Answers - 1. Integration
difficulties
2. Inadequate evaluation of target
3. Large or extraordinary debt
4. Inability to achieve synergy
5. Too much diversification
6. Managers overly focused on acquisitions
7. Too large
Corporate governance - Answers - The set of mechanisms used to manage the
relationships among stakeholders and to determine and control the strategic direction
and performance of organizations.
Agency relationship - Answers - Exists when one party delegates decision-making
responsibility to a second party for compensation.
Managerial opportunism - Answers - The seeking of self-interest with guile (i.e., cunning
or deceit).
Agency costs - Answers - Are the sum of incentive costs, monitoring costs, enforcement
costs, and individual financial losses incurred by principals because governance
mechanisms cannot guarantee total compliance by the agent.
Ownership concentration - Answers - Defined by the number of large-block
shareholders and the total percentage of the firm's shares they own.
ANSWERS
Corporate-level core competencies - Answers - Are complex sets of resources and
capabilities that link different businesses, primarily through managerial and
technological knowledge, experience, and expertise.
Corporate-level strategy - Answers - Specifies actions a firm takes to gain a competitive
advantage by selecting and managing a group of different businesses competing in
different product markets.
Economies of scope - Answers - Are cost savings a firm creates by successfully sharing
resources and capabilities or transferring one or more corporate-level core
competencies that were developed in one of its businesses to another of its businesses.
Financial economies - Answers - Are cost savings realized through improved allocations
of financial resources based on investments inside or outside the firm.
Market power - Answers - Exists when a firm is able to sell its products above the
existing competitive level or to reduce the costs of its primary and support activities
below the competitive level, or both.
Multipoint competition - Answers - Exists when two or more diversified firms
simultaneously compete in the same product areas or geographical markets.
Synergy - Answers - Exists when the value created by business units working together
exceeds the value that those same units create working independently.
Acquisition - Answers - A strategy through which one firm buys a controlling, or 100
percent, interest in another firm with the intent of making the acquired firm a subsidiary
business within its portfolio.
Takeover - Answers - A special type of acquisition where the target firm does not solicit
the acquiring firm's bid; thus, these are unfriendly acquisitions.
Restructuring - Answers - A strategy through which a firm changes its set of businesses
or its financial structure.
Merger - Answers - A strategy through which two firms agree to integrate their
operations on a relatively coequal basis.
, Acquisitions can contribute to a firm's competitiveness if they have the following
attributes: - Answers - 1. The acquired firm has assets or resources that are
complementary to the acquiring firm's core business.
2. The acquisition is friendly.
3. The acquiring firm conducts effective due diligence to select target firms and evaluate
the target firm's health (financial, cultural, and human resources).
4. The acquiring firm has financial slack (cash or a favorable debt position).
5. The merged firm maintains low to moderate debt position.
6. The acquiring firm has a sustained and consistent emphasis on R&D and innovation.
7. The acquiring firm manages change well and is flexible and adaptable.
The seven reasons firms engage in an acquisition strategy are: - Answers - 1. Increased
market power
2. Overcoming entry barriers
3. Cost of new product development and increasing speed to market
4. Lower risk compared to developing new products
5. Increased diversification
6. Reshaping the firm's competitive scope
7. Learning and developing new capabilities
The seven problems in achieving a successful acquisition are: - Answers - 1. Integration
difficulties
2. Inadequate evaluation of target
3. Large or extraordinary debt
4. Inability to achieve synergy
5. Too much diversification
6. Managers overly focused on acquisitions
7. Too large
Corporate governance - Answers - The set of mechanisms used to manage the
relationships among stakeholders and to determine and control the strategic direction
and performance of organizations.
Agency relationship - Answers - Exists when one party delegates decision-making
responsibility to a second party for compensation.
Managerial opportunism - Answers - The seeking of self-interest with guile (i.e., cunning
or deceit).
Agency costs - Answers - Are the sum of incentive costs, monitoring costs, enforcement
costs, and individual financial losses incurred by principals because governance
mechanisms cannot guarantee total compliance by the agent.
Ownership concentration - Answers - Defined by the number of large-block
shareholders and the total percentage of the firm's shares they own.
