MGT 4893 Module 10 Chap. 13 And
Module 15 Questions and Answers.
The expression "conglomerate discount" refers to: - Answer The stock market's tendency to
value diversified companies at less than their break-up value
Economies of scope may be viewed as economies of scale that are exploited over multiple
products. - Answer True
Which of the following is NOT an example of an economy of scope from diversification? -
Answer Royal Dutch Shell engaging in forest development in order to offset some of the
carbon dioxide produced by its petroleum business
To determine whether a firm's diversification is related or unrelated, we need to consider: -
Answer Whether the two businesses share some of the same resources and capabilities
A major reason for the trend to corporate refocusing (i.e., moving away from diversification)
after 1980 was a shifting of corporate goals from growth to profitability. - Answer True
Industry attractiveness is a sufficient justification for diversification (according to Michael Porter
and the Grant chapter). - Answer False
"Strategic relatedness" (as distinct from "operational relatedness") in diversification refers to: -
Answer The ability to apply similar strategies and control systems across the businesses
What is the main difference between the "parenting advantage" framework and Porter's "three
essential tests" in evaluating the value-adding potential of diversification? - Answer Porter's
"three essential tests" considers whether diversification creates shareholder value, whereas
"parenting advantage" considers whether a firm's ownership of a business creates more value
than any other potential parent might.
Uncertainty and imprecision over what constitutes "related" diversification has led to
inconsistent findings regarding the relative performance of related diversification vs. unrelated
diversification. - Answer True
Diversification whose sole impact is to reduce the variability of profits does not create value for
shareholders because: - Answer If investors can spread risk by diversifying their investment
portfolios, then diversification adds no additional value in terms of risk spreading.
According to Milton Friedman, a corporate executive is an employee of (and directly responsible
to): - Answer The owners of the business
Module 15 Questions and Answers.
The expression "conglomerate discount" refers to: - Answer The stock market's tendency to
value diversified companies at less than their break-up value
Economies of scope may be viewed as economies of scale that are exploited over multiple
products. - Answer True
Which of the following is NOT an example of an economy of scope from diversification? -
Answer Royal Dutch Shell engaging in forest development in order to offset some of the
carbon dioxide produced by its petroleum business
To determine whether a firm's diversification is related or unrelated, we need to consider: -
Answer Whether the two businesses share some of the same resources and capabilities
A major reason for the trend to corporate refocusing (i.e., moving away from diversification)
after 1980 was a shifting of corporate goals from growth to profitability. - Answer True
Industry attractiveness is a sufficient justification for diversification (according to Michael Porter
and the Grant chapter). - Answer False
"Strategic relatedness" (as distinct from "operational relatedness") in diversification refers to: -
Answer The ability to apply similar strategies and control systems across the businesses
What is the main difference between the "parenting advantage" framework and Porter's "three
essential tests" in evaluating the value-adding potential of diversification? - Answer Porter's
"three essential tests" considers whether diversification creates shareholder value, whereas
"parenting advantage" considers whether a firm's ownership of a business creates more value
than any other potential parent might.
Uncertainty and imprecision over what constitutes "related" diversification has led to
inconsistent findings regarding the relative performance of related diversification vs. unrelated
diversification. - Answer True
Diversification whose sole impact is to reduce the variability of profits does not create value for
shareholders because: - Answer If investors can spread risk by diversifying their investment
portfolios, then diversification adds no additional value in terms of risk spreading.
According to Milton Friedman, a corporate executive is an employee of (and directly responsible
to): - Answer The owners of the business
