MGMT 425 CORRECT STUDYS ANSWERS AND
QUESTIONS SET A+
✔✔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:
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. - ✔✔C
✔✔ALTHOUGH a(n) ______________ job of _______________ firm, GE has done an
exceptional its four major strategic business units.
a. related linked; allocating capital across
b. related constrained; restructuring
c. unrelated; sharing activities across
d. unrelated; transferring core competencies across - ✔✔A
✔✔LARGE diversified businesses often face a ____________ , which results from
analysts not knowing how to value a vast array of large businesses with complex
financial reports.
a. threat of regulation by the Securities and Exchange Commission
b. high CEO turnover
c. threat of takeover
d. conglomerate discount - ✔✔D
✔✔THE Risk for firms that follow the unrelated diversification strategy in developed
economies is that:
a. external investors tend to dump the stocks of conglomerates during economic
downturns.
, b. conglomerates are typically owned by one powerful entrepreneur and do not survive
his/her retirement or death.
c. government regulations, especially in Europe, have periodically forced the dissolution
of conglomerates.
d. competitors can imitate financial economies more easily than they imitate economies
of scope. - ✔✔D
✔✔BECAUSE of the tax laws of the 1960s and 1970s, when dividends were taxed more
heavily than capital gains, shareholders preferred that corporations:
a. pay dividends annually.
b. keep free cash flows for investment in acquisitions.
c. distribute capital gains regularly.
d. increase managerial salaries. - ✔✔B
✔✔AS The threat of corporate failure increases due to relatedness between a firm's
business units, firms may decide to:
a. increase the firm's level of retained resources.
b. diversify into less risky environments.
c. reduce the level of diversity in its investments.
d. pursue unproven product lines. - ✔✔B
✔✔THE Cherrywood Fine Furniture Company finds itself with excess capacity in its
plant and equipment for furniture manufacturing. This excess capacity will be useful in:
a. unrelated diversification.
b. related diversification projects.
c. corporate restructuring.
d. multipoint competition - ✔✔B
✔✔WHICH of the following is NOT a governance mechanism that may limit managerial
tendencies to over-diversify?
a. the market for corporate control
b. the Board of Directors
c. surveillance technologies
d. executive compensation practices - ✔✔C
✔✔IN Making a decision to diversify, managers should use value-creating reasons or
face the risk that their firms will be acquired and they could lose their jobs. Which of the
following is a value-creating reason to diversify?
a. economies of scope
b. desire for increased compensation
c. reduced managerial risk
d. low performance - ✔✔A
✔✔ORGANIZATIONAL structure:
QUESTIONS SET A+
✔✔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:
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. - ✔✔C
✔✔ALTHOUGH a(n) ______________ job of _______________ firm, GE has done an
exceptional its four major strategic business units.
a. related linked; allocating capital across
b. related constrained; restructuring
c. unrelated; sharing activities across
d. unrelated; transferring core competencies across - ✔✔A
✔✔LARGE diversified businesses often face a ____________ , which results from
analysts not knowing how to value a vast array of large businesses with complex
financial reports.
a. threat of regulation by the Securities and Exchange Commission
b. high CEO turnover
c. threat of takeover
d. conglomerate discount - ✔✔D
✔✔THE Risk for firms that follow the unrelated diversification strategy in developed
economies is that:
a. external investors tend to dump the stocks of conglomerates during economic
downturns.
, b. conglomerates are typically owned by one powerful entrepreneur and do not survive
his/her retirement or death.
c. government regulations, especially in Europe, have periodically forced the dissolution
of conglomerates.
d. competitors can imitate financial economies more easily than they imitate economies
of scope. - ✔✔D
✔✔BECAUSE of the tax laws of the 1960s and 1970s, when dividends were taxed more
heavily than capital gains, shareholders preferred that corporations:
a. pay dividends annually.
b. keep free cash flows for investment in acquisitions.
c. distribute capital gains regularly.
d. increase managerial salaries. - ✔✔B
✔✔AS The threat of corporate failure increases due to relatedness between a firm's
business units, firms may decide to:
a. increase the firm's level of retained resources.
b. diversify into less risky environments.
c. reduce the level of diversity in its investments.
d. pursue unproven product lines. - ✔✔B
✔✔THE Cherrywood Fine Furniture Company finds itself with excess capacity in its
plant and equipment for furniture manufacturing. This excess capacity will be useful in:
a. unrelated diversification.
b. related diversification projects.
c. corporate restructuring.
d. multipoint competition - ✔✔B
✔✔WHICH of the following is NOT a governance mechanism that may limit managerial
tendencies to over-diversify?
a. the market for corporate control
b. the Board of Directors
c. surveillance technologies
d. executive compensation practices - ✔✔C
✔✔IN Making a decision to diversify, managers should use value-creating reasons or
face the risk that their firms will be acquired and they could lose their jobs. Which of the
following is a value-creating reason to diversify?
a. economies of scope
b. desire for increased compensation
c. reduced managerial risk
d. low performance - ✔✔A
✔✔ORGANIZATIONAL structure:
