BPS EXAM 2 WITH COMPLETE
SOLUTIONS 100% GUARANTEED
PASS
Key rationales for vertical integration - Answer-Saving on operational costs, improving
quality, protecting technology, and gaining information control.
Drawbacks of vertical integration - Answer-High costs, reduced flexibility, capacity
imbalance, and bureaucratic inefficiency.
Unrelated diversification's value source - Answer-Financial economies through efficient
internal capital allocation and restructuring of assets.
Conglomerate discount - Answer-The stock market valuing diversified firms at less than
the sum of their parts.
merger - Answer-Integration of two firms on a co-equal basis.
acquisition - Answer-One firm buys controlling interest in another to make it a
subsidiary.
takeover - Answer-An acquisition that is unsolicited or hostile.
reasons for acquisitions - Answer-Increase market power, overcome barriers to entry,
reduce costs and risks, increase speed to market, increase diversification, reshape
scope, and learn new capabilities.
sources of market power through acquisitions - Answer-Firm size,
resources/capabilities, and market share.
horizontal acquisition - Answer-Acquisition of a firm in the same industry to gain cost or
revenue synergies.
vertical acquisition - Answer-Acquisition of a supplier or distributor to control more of the
value chain.
related acquisition - Answer-Acquisition of a firm in a related industry to leverage core
competencies.
, acquisitions vs internal development - Answer-To avoid high R&D costs and speed
entry into markets.
common problems in acquisition success - Answer-Integration difficulties, inadequate
target evaluation, large debt, inability to achieve synergy, overdiversification, managerial
focus on deals, and excessive size.
synergy - Answer-The value created when combined units exceed the value they could
create independently.
private synergy - Answer-Unique value creation from combining assets in ways no other
firm could replicate.
due diligence - Answer-The process by which an acquirer evaluates a target firm before
acquisition.
restructuring - Answer-Strategy to change a firm's set of businesses or financial
structure.
Corporate-level strategy - Answer-Actions a firm takes to gain competitive advantage by
selecting and managing a group of different businesses competing in different product
markets.
Key issues corporate-level strategy addresses - Answer-(1) In which product markets
and businesses to compete; (2) How corporate headquarters should manage those
businesses.
Diversification - Answer-The process of a firm entering different product markets or
industries to reduce risk and increase value.
Value creation in corporate strategy - Answer-Whether the combined businesses are
worth more under the firm's ownership than under separate ownership.
Benefits of successful diversification - Answer-Reduced variability in profitability and
flexibility to shift investments to higher-return markets.
Levels of diversification - Answer-Low, moderate-to-high, and very high diversification.
Types of diversification strategies - Answer-Single Business, Dominant Business,
Related Constrained, Related Linked, and Unrelated.
Single business definition - Answer-95% or more from one business.
Dominant business definition - Answer-70%-95% from one business.
SOLUTIONS 100% GUARANTEED
PASS
Key rationales for vertical integration - Answer-Saving on operational costs, improving
quality, protecting technology, and gaining information control.
Drawbacks of vertical integration - Answer-High costs, reduced flexibility, capacity
imbalance, and bureaucratic inefficiency.
Unrelated diversification's value source - Answer-Financial economies through efficient
internal capital allocation and restructuring of assets.
Conglomerate discount - Answer-The stock market valuing diversified firms at less than
the sum of their parts.
merger - Answer-Integration of two firms on a co-equal basis.
acquisition - Answer-One firm buys controlling interest in another to make it a
subsidiary.
takeover - Answer-An acquisition that is unsolicited or hostile.
reasons for acquisitions - Answer-Increase market power, overcome barriers to entry,
reduce costs and risks, increase speed to market, increase diversification, reshape
scope, and learn new capabilities.
sources of market power through acquisitions - Answer-Firm size,
resources/capabilities, and market share.
horizontal acquisition - Answer-Acquisition of a firm in the same industry to gain cost or
revenue synergies.
vertical acquisition - Answer-Acquisition of a supplier or distributor to control more of the
value chain.
related acquisition - Answer-Acquisition of a firm in a related industry to leverage core
competencies.
, acquisitions vs internal development - Answer-To avoid high R&D costs and speed
entry into markets.
common problems in acquisition success - Answer-Integration difficulties, inadequate
target evaluation, large debt, inability to achieve synergy, overdiversification, managerial
focus on deals, and excessive size.
synergy - Answer-The value created when combined units exceed the value they could
create independently.
private synergy - Answer-Unique value creation from combining assets in ways no other
firm could replicate.
due diligence - Answer-The process by which an acquirer evaluates a target firm before
acquisition.
restructuring - Answer-Strategy to change a firm's set of businesses or financial
structure.
Corporate-level strategy - Answer-Actions a firm takes to gain competitive advantage by
selecting and managing a group of different businesses competing in different product
markets.
Key issues corporate-level strategy addresses - Answer-(1) In which product markets
and businesses to compete; (2) How corporate headquarters should manage those
businesses.
Diversification - Answer-The process of a firm entering different product markets or
industries to reduce risk and increase value.
Value creation in corporate strategy - Answer-Whether the combined businesses are
worth more under the firm's ownership than under separate ownership.
Benefits of successful diversification - Answer-Reduced variability in profitability and
flexibility to shift investments to higher-return markets.
Levels of diversification - Answer-Low, moderate-to-high, and very high diversification.
Types of diversification strategies - Answer-Single Business, Dominant Business,
Related Constrained, Related Linked, and Unrelated.
Single business definition - Answer-95% or more from one business.
Dominant business definition - Answer-70%-95% from one business.
