FINANCIAL MODELING REVISION EXAM 2025/2026
QUESTIONS WITH ANSWERS GRADED A+
✔✔types of business models (7) - ✔✔-vertical integration
-tapered integration
-horizontal integration
-off-shore outsourcing
-domestic outsourcing
-join ventures
-non-related diversification
✔✔Vertical integration - ✔✔-organizations attempt to create core competitive
competencies and competitive advantage by controlling corporate-owned SBUs at each
stage of the value chain.
-attempt to make the firm self sufficient
-any traditional dependencies that an organization has with other firms/subcontractors in
the value chain are eliminated
✔✔benefits of Vertical integration - ✔✔-enhance the security of a firms intellectual
properties and reduce some competitive threats arising from economic espionage, trade
secret misappropriation and product cloning.
-maintain product/service quality in a manner consistent with the organizations brand
image
✔✔disadvantages of vertical integration - ✔✔-strategic inflexibility
-slowness to innovation
-high fixed and variable costs and high break even points
-large market shares or large gross margins needed to be profitable
-required to spread fixed costs over a large production or service volume to lower CPU
(cost per unit)
- utilize higher prices/revenues to offset the extensive fixed cost allocations generated
by vertically integrated business models
✔✔tapered integration - ✔✔firm controls the value chain through a combination of
ownership and subcontracting activities.
-creation of SBUs to control two stages of the value chain and subcontracting of the
remaining stage.
-Both upstream and downstream integration possible
✔✔Upstream integration - ✔✔manufacturing firm acquiring ownership of raw material
fabricating facility and subcontracting its distribution activities
✔✔Downstream integration - ✔✔manufacturing firm acquiring ownership over
distribution while using outsources to provide it with raw material
, ✔✔advantages of tapered integration - ✔✔-permits firms to exert control over business
activities involving critical core competencies or gaining market access for their primary
products and services
-permits firms to leverage lower costs, innovative materials/products, and state of the art
manufacturing/distribution infrastructures which may be available through outsourcers
✔✔Horizontal integration (related diversification) - ✔✔an attempt by an organization to
achieve competitive dominance in one stage of the value chain within and industry.
✔✔Horizontal integration is characterized by - ✔✔development or acquisition of SBUs
which are all concentrated in the same stage of the value chain.
✔✔success in horizontal integration is characterized by - ✔✔an organizations ability to
utilize its collective marketing/technological capabilities to create competitive core
competencies in each of its SBUs.
✔✔core competencies are created in horizontal integration by - ✔✔-complementary and
synergistic use of marketing research,sales and promotion efforts across SBUs and
product lines
-sharing common distribution channels or transportation systems
-similar or shared process technologies, work methods or machinery similar or common
raw materials
- synergistic applications of R and D and product development activities
✔✔Non-related diversification - ✔✔business model that permit's firms to create a
portfolio of SBUs which are located in different industries and stages of the value chain.
✔✔positive charecteristics of Non-related diversification - ✔✔each business unit in the
portfolio is relatively unaffected by potential resource constraints, business cycles,
market evolution, and or the financial performance experienced by other portfolio SBUs.
✔✔limitations of non-related diversification - ✔✔this does not permit the leveraging of
marketing/technological synergies across SBUs in order to improve the cost efficiency,
market responsiveness and product development activities of individual business units
✔✔join ventures - ✔✔control various stages of the value chain by initiating strategic
alliances/partnerships with other organizations.
✔✔why choose joint venture - ✔✔1. avoiding high initial investments and failure
probabilities associated with new ventures
2. leveraging the competitive core competencies and infrastrucutre of the partner's
business operations
3. eliminating potential threats of asset nationalization
✔✔more reasons to choose joint venture - ✔✔1. mobility and exit barriers
QUESTIONS WITH ANSWERS GRADED A+
✔✔types of business models (7) - ✔✔-vertical integration
-tapered integration
-horizontal integration
-off-shore outsourcing
-domestic outsourcing
-join ventures
-non-related diversification
✔✔Vertical integration - ✔✔-organizations attempt to create core competitive
competencies and competitive advantage by controlling corporate-owned SBUs at each
stage of the value chain.
-attempt to make the firm self sufficient
-any traditional dependencies that an organization has with other firms/subcontractors in
the value chain are eliminated
✔✔benefits of Vertical integration - ✔✔-enhance the security of a firms intellectual
properties and reduce some competitive threats arising from economic espionage, trade
secret misappropriation and product cloning.
-maintain product/service quality in a manner consistent with the organizations brand
image
✔✔disadvantages of vertical integration - ✔✔-strategic inflexibility
-slowness to innovation
-high fixed and variable costs and high break even points
-large market shares or large gross margins needed to be profitable
-required to spread fixed costs over a large production or service volume to lower CPU
(cost per unit)
- utilize higher prices/revenues to offset the extensive fixed cost allocations generated
by vertically integrated business models
✔✔tapered integration - ✔✔firm controls the value chain through a combination of
ownership and subcontracting activities.
-creation of SBUs to control two stages of the value chain and subcontracting of the
remaining stage.
-Both upstream and downstream integration possible
✔✔Upstream integration - ✔✔manufacturing firm acquiring ownership of raw material
fabricating facility and subcontracting its distribution activities
✔✔Downstream integration - ✔✔manufacturing firm acquiring ownership over
distribution while using outsources to provide it with raw material
, ✔✔advantages of tapered integration - ✔✔-permits firms to exert control over business
activities involving critical core competencies or gaining market access for their primary
products and services
-permits firms to leverage lower costs, innovative materials/products, and state of the art
manufacturing/distribution infrastructures which may be available through outsourcers
✔✔Horizontal integration (related diversification) - ✔✔an attempt by an organization to
achieve competitive dominance in one stage of the value chain within and industry.
✔✔Horizontal integration is characterized by - ✔✔development or acquisition of SBUs
which are all concentrated in the same stage of the value chain.
✔✔success in horizontal integration is characterized by - ✔✔an organizations ability to
utilize its collective marketing/technological capabilities to create competitive core
competencies in each of its SBUs.
✔✔core competencies are created in horizontal integration by - ✔✔-complementary and
synergistic use of marketing research,sales and promotion efforts across SBUs and
product lines
-sharing common distribution channels or transportation systems
-similar or shared process technologies, work methods or machinery similar or common
raw materials
- synergistic applications of R and D and product development activities
✔✔Non-related diversification - ✔✔business model that permit's firms to create a
portfolio of SBUs which are located in different industries and stages of the value chain.
✔✔positive charecteristics of Non-related diversification - ✔✔each business unit in the
portfolio is relatively unaffected by potential resource constraints, business cycles,
market evolution, and or the financial performance experienced by other portfolio SBUs.
✔✔limitations of non-related diversification - ✔✔this does not permit the leveraging of
marketing/technological synergies across SBUs in order to improve the cost efficiency,
market responsiveness and product development activities of individual business units
✔✔join ventures - ✔✔control various stages of the value chain by initiating strategic
alliances/partnerships with other organizations.
✔✔why choose joint venture - ✔✔1. avoiding high initial investments and failure
probabilities associated with new ventures
2. leveraging the competitive core competencies and infrastrucutre of the partner's
business operations
3. eliminating potential threats of asset nationalization
✔✔more reasons to choose joint venture - ✔✔1. mobility and exit barriers
