Question 1

Managerial behaviors that erode shareholder returns include egotism, antitakeover tactics and controlled growth.

Accepted Answer

A) True 
 B)False

Question 2

Economies of scope in a related diversification strategy result from the leveraging of core competencies and the sharing of activities among businesses in the corporation such as production.

Accepted Answer

A) True 
 B)False

Question 3

Reasons for acquisition failure include the effective integration of the acquisition.

Accepted Answer

A) True 
 B)False

Question 4

When management uses common production facilities or purchasing procedures to distribute different but related products, they are

Accepted Answer

A) building on core competencies. 
B) achieving process gains. 
C) using portfolio analysis. 
D) sharing activities.

Question 5

For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements?

Accepted Answer

A) The competence must help the business gain strength relative to its competition. 
B) The new business must be similar to existing businesses to benefit from a core competence. 
C) The new business must have an established large market share. 
D) The collection of competencies should be unique, so that they cannot be easily imitated.

Question 6

At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as superb human resource practices and budgeting systems. This is an example of using

Accepted Answer

A) related diversification to acquire economies of scope by leveraging pooled negotiating power. 
B) related diversification to acquire market power by leveraging core competencies. 
C) unrelated diversification to acquire financial synergies through portfolio management. 
D) unrelated diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting.

Question 7

ConAgra uses the related diversification vertical integration initiative to enhance market power. They do this to increase their power over suppliers by centrally purchasing huge quantities of packaging materials for all of its food divisions.

Accepted Answer

A) True 
 B)False

Question 8

When firms diversify into unrelated businesses, the primary potential benefits are horizontal relationships, i.e., businesses sharing tangible and intangible resources.

Accepted Answer

A) True 
 B)False

Question 9

In the BCG Matrix, a business that has a low market share in an industry characterized by high market growth is termed a

Accepted Answer

A) Star. 
B) Cash Cow. 
C) Question Mark. 
D) Dog.

Question 10

Through joint ventures, firms can directly acquire the assets and competencies of other firms.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements regarding internal development as a means of diversification is false?

Accepted Answer

A) Many companies use internal development to extend their product or service offers. 
B) An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services. 
C) The firm is able to capture wealth created without having to share the wealth with alliance partners. 
D) Firms can often develop products or services at a lower cost, if they rely on their own resources instead of external funding.

Question 12

A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package.

Accepted Answer

A) True 
 B)False

Question 13

In managing the corporate portfolio, the BCG matrix would suggest that

Accepted Answer

A) Dogs should be invested in to increase market share and become Cash Cows. 
B) Stars are in low growth markets and can provide excess cash to fund other opportunities. 
C) Cash Cows require substantial cash outlays to maintain market share. 
D) Question Marks can represent future Stars if their market share is increased.

Question 14

With unrelated diversification, potential benefits can be gained from vertical or hierarchical relationships; that is, the creation of synergies from the interaction of the corporate office with outside stakeholders.

Accepted Answer

A) True 
 B)False

Question 15

Research shows that the vast majority of acquisitions of public corporations results in value creation rather than value destruction.

Accepted Answer

A) True 
 B)False

Question 16

Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

Accepted Answer

A) True 
 B)False

Question 17

Cooper Industries has followed a successful strategy of related diversification. There are few similarities in the products it makes or the industries in which it competes.

Accepted Answer

A) True 
 B)False

Question 18

The risks of vertical integration include all of the following except

Accepted Answer

A) costs and expenses associated with increased overhead and capital expenditures. 
B) lack of control over valuable assets. 
C) problems associated with unbalanced capacities along the value chain. 
D) additional administrative costs associated with managing a more complex set of activities.

Question 19

In recent years, many high tech firms such as Priceline.com have suffered from the negative impact of uncontrolled growth.

Accepted Answer

A) True 
 B)False

Question 20

Cooperative relationships such as __________ have potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.

Accepted Answer

A) franchises 
B) mergers 
C) acquisitions 
D) joint ventures and strategic alliances

Exam 6: Corporate-Level Strategy: Creating Value Through Diversification

Managerial behaviors that erode shareholder returns include egotism, antitakeover tactics and controlled growth.

Economies of scope in a related diversification strategy result from the leveraging of core competencies and the sharing of activities among businesses in the corporation such as production.

Reasons for acquisition failure include the effective integration of the acquisition.

When management uses common production facilities or purchasing procedures to distribute different but related products, they are

For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements?

At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as superb human resource practices and budgeting systems. This is an example of using

ConAgra uses the related diversification vertical integration initiative to enhance market power. They do this to increase their power over suppliers by centrally purchasing huge quantities of packaging materials for all of its food divisions.

When firms diversify into unrelated businesses, the primary potential benefits are horizontal relationships, i.e., businesses sharing tangible and intangible resources.

In the BCG Matrix, a business that has a low market share in an industry characterized by high market growth is termed a

Through joint ventures, firms can directly acquire the assets and competencies of other firms.

Which of the following statements regarding internal development as a means of diversification is false?

A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package.

In managing the corporate portfolio, the BCG matrix would suggest that

With unrelated diversification, potential benefits can be gained from vertical or hierarchical relationships; that is, the creation of synergies from the interaction of the corporate office with outside stakeholders.

Research shows that the vast majority of acquisitions of public corporations results in value creation rather than value destruction.

Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

Cooper Industries has followed a successful strategy of related diversification. There are few similarities in the products it makes or the industries in which it competes.

The risks of vertical integration include all of the following except

In recent years, many high tech firms such as Priceline.com have suffered from the negative impact of uncontrolled growth.

Cooperative relationships such as __________ have potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.