BUSA 4980 FINAL UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
1. Define corporate-level strategy
Answer:
strategies firms use to diversify their operations from a business operating in a
single market into several product markets & industries
Question:
2. Why do firms tend to diversify?
Answer:
incentives and value creating opportunities
Question:
3. incentives
Answer:
diminishing market opportunities, spread across various industries, exploit
valuable tangible/in tangible resources
Question:
4. value creation
Answer:
obtain economies of scope by sharing activities to reduce costs or by transferring
core competencies to other businesses, gain market power through vertical
integration or multipoint competition, achieve financial economies through
efficient capital allocation or business restructuring
Question:
5. 3 criteria for testing the merit of diversification
Answer:
Industry attractiveness: must be attractive for a good ROI
Cost of entry: must not be high to erode returns
Better off: business must perform better than independent
, Question:
6. related diversification
Answer:
(ex: coca cola investing into making coffee since they're in the beverage industry)
•Benefits → Define economies of scope and market power
•Operational versus corporate relatedness
•Avenues of market power
Question:
7. unrelated diversification
Answer:
(ex: bank trying to go into car manufacturing)
•What are financial economies? → Internal capital market allocation and asset
restructuring
•General managerial problems of unrelated diversification
Question:
8. Which form of diversification tends to add more value?
Answer:
related
Question:
9. Define mergers and acquisitions (M&A)
Answer:
combining the operations of 2 companies to achieve economies, strengthen
competitiveness, and create new opportunities
Question:
10. Why do firms use M&A as a strategic vehicle?
Answer:
Increased market power, overcome entry barriers, bi-pass new product
development, increased diversification, reshape competitive scope, develop new
capabilities
Question:
11. What are the five distinct varieties of M&A?
Answer:
Overcapacity, geography, product/ market, R&D deal, convergence
CORRECT ANSWERS
Question:
1. Define corporate-level strategy
Answer:
strategies firms use to diversify their operations from a business operating in a
single market into several product markets & industries
Question:
2. Why do firms tend to diversify?
Answer:
incentives and value creating opportunities
Question:
3. incentives
Answer:
diminishing market opportunities, spread across various industries, exploit
valuable tangible/in tangible resources
Question:
4. value creation
Answer:
obtain economies of scope by sharing activities to reduce costs or by transferring
core competencies to other businesses, gain market power through vertical
integration or multipoint competition, achieve financial economies through
efficient capital allocation or business restructuring
Question:
5. 3 criteria for testing the merit of diversification
Answer:
Industry attractiveness: must be attractive for a good ROI
Cost of entry: must not be high to erode returns
Better off: business must perform better than independent
, Question:
6. related diversification
Answer:
(ex: coca cola investing into making coffee since they're in the beverage industry)
•Benefits → Define economies of scope and market power
•Operational versus corporate relatedness
•Avenues of market power
Question:
7. unrelated diversification
Answer:
(ex: bank trying to go into car manufacturing)
•What are financial economies? → Internal capital market allocation and asset
restructuring
•General managerial problems of unrelated diversification
Question:
8. Which form of diversification tends to add more value?
Answer:
related
Question:
9. Define mergers and acquisitions (M&A)
Answer:
combining the operations of 2 companies to achieve economies, strengthen
competitiveness, and create new opportunities
Question:
10. Why do firms use M&A as a strategic vehicle?
Answer:
Increased market power, overcome entry barriers, bi-pass new product
development, increased diversification, reshape competitive scope, develop new
capabilities
Question:
11. What are the five distinct varieties of M&A?
Answer:
Overcapacity, geography, product/ market, R&D deal, convergence
