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Strategic Mgmt EXAM QUESTIONS AND
CORRECT DETAILED ANSWERS
Which of the following is NOT a governance mechanism that may
limit managerial tendencies to over-diversify? Ans: surveillance
technologies
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? Ans: economies of scope
Free cash flows are Ans: liquid financial assets for which
investments in current businesses are no longer economically
viable.
Because of the tax laws of the 1960s and 1970s, when dividends
were taxed more heavily than capital gains, shareholders preferred
that corporations Ans: keep free cash flows for investment in
acquisitions.
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 Ans: related diversification
projects
Which of the following is NOT a limitation directly relating to
vertical integration? Ans: imitation of core technology by potential
competitors
Corporate-level strategy is concerned with ____ and how to manage
these businesses. Ans: what product markets and businesses the
firm should be in
Walt Disney Company has successfully used related diversification
to create value by Ans: sharing activities and transferring core
competencies
Revenues for United Parcel Service (UPS) come from the following
business segments: 60 percent from U.S. package delivery
operations, 22 percent from international package delivery, and 18
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percent from non-packaging operations. Which best describes the
corporate level strategy of UPS? Ans: dominant business
Which of the following reasons for diversification is most likely to
increase the firm's value? Ans: reducing costs through business
restructuring
Which of the following is a value-reducing reason for
diversification? Ans: expanding the business portfolio in order to
diversify managerial employment risk
The _________________diversification strategy creates value in two
ways. First, since the core competence has already been developed
in one business, the firm does not have to allocate resources to
develop it. Second, since the resource is intangible, competitors
cannot easily imitate it. Ans: related linked
The main difference between the related constrained level of
diversification and the related linked level of diversification is
Ans: the level of resources and activities shared among the
businesses.
Firms that have selected a related diversification corporate-level
strategy seek to exploit Ans: economies of scope between business
units
The basic types of operational economies through which firms
seek value from economies of scope are Ans: the sharing of value
chain activities and support functions.
Which of the following is TRUE? Ans: Related constrained firms
share more tangible resources and activities between businesses
than do related linked firms.
When a firm simultaneously practices operational relatedness and
corporate relatedness, Ans: it is difficult for investors to observe
the value created by the firm.
A firm that earns less than 70 percent of revenue from its
dominant business and has direct connections between its
businesses is engaging in ____ diversification. Ans: related
constrained
© 2025 All rights reserved
Strategic Mgmt EXAM QUESTIONS AND
CORRECT DETAILED ANSWERS
Which of the following is NOT a governance mechanism that may
limit managerial tendencies to over-diversify? Ans: surveillance
technologies
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? Ans: economies of scope
Free cash flows are Ans: liquid financial assets for which
investments in current businesses are no longer economically
viable.
Because of the tax laws of the 1960s and 1970s, when dividends
were taxed more heavily than capital gains, shareholders preferred
that corporations Ans: keep free cash flows for investment in
acquisitions.
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 Ans: related diversification
projects
Which of the following is NOT a limitation directly relating to
vertical integration? Ans: imitation of core technology by potential
competitors
Corporate-level strategy is concerned with ____ and how to manage
these businesses. Ans: what product markets and businesses the
firm should be in
Walt Disney Company has successfully used related diversification
to create value by Ans: sharing activities and transferring core
competencies
Revenues for United Parcel Service (UPS) come from the following
business segments: 60 percent from U.S. package delivery
operations, 22 percent from international package delivery, and 18
© 2025 All rights reserved
, 2 | Page
percent from non-packaging operations. Which best describes the
corporate level strategy of UPS? Ans: dominant business
Which of the following reasons for diversification is most likely to
increase the firm's value? Ans: reducing costs through business
restructuring
Which of the following is a value-reducing reason for
diversification? Ans: expanding the business portfolio in order to
diversify managerial employment risk
The _________________diversification strategy creates value in two
ways. First, since the core competence has already been developed
in one business, the firm does not have to allocate resources to
develop it. Second, since the resource is intangible, competitors
cannot easily imitate it. Ans: related linked
The main difference between the related constrained level of
diversification and the related linked level of diversification is
Ans: the level of resources and activities shared among the
businesses.
Firms that have selected a related diversification corporate-level
strategy seek to exploit Ans: economies of scope between business
units
The basic types of operational economies through which firms
seek value from economies of scope are Ans: the sharing of value
chain activities and support functions.
Which of the following is TRUE? Ans: Related constrained firms
share more tangible resources and activities between businesses
than do related linked firms.
When a firm simultaneously practices operational relatedness and
corporate relatedness, Ans: it is difficult for investors to observe
the value created by the firm.
A firm that earns less than 70 percent of revenue from its
dominant business and has direct connections between its
businesses is engaging in ____ diversification. Ans: related
constrained
© 2025 All rights reserved
