A Company Should Pursue Related Diversification Instead of Unrelated Diversification

question 74

Multiple Choice

A company should pursue related diversification instead of unrelated diversification when the company's:

• A) core skills are applicable to a wide variety of industrial and commercial situations.
• B) core skills are highly specialized and have few applications outside the core business.
• C) top managers are skilled at acquiring and turning around poorly run enterprises.
• D) main objective is to maximize its growth.
• E) free cash flow is high enough that it has funds available for investment.

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Definitions:

Reportable Segment

A distinguishable component of an enterprise engaging in operations from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker.

Operating Profit

The profit earned from a firm's core business operations, excluding deductions of interest and tax, as well as any non-operational income and expenses.

Loss

A financial situation where expenses exceed revenues.

Pension Expense

The total cost recognized by an employer for an accounting period regarding the company’s pension plan, comprising service costs, interest costs, plan amendments, and other factors.