When a Large and Established Firm Gets into a New

question 216

Multiple Choice

When a large and established firm gets into a new line of business, either on its own or by acquiring a smaller and newer innovative firm, what does the new innovative unit require?

• A)Coordination
• B)Integration
• C)Differentiation
• D)Formalization
• E)Decentralization

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Definitions:

Capital Asset Pricing Model (CAPM)

Equation of the Security Market Line showing the relationship between expected return and beta.

Reward To Risk Ratio

A measure that evaluates the anticipated gains from an investment against the level of risk assumed to achieve these gains.

Security Market Line

A graphical representation of the expected return of all risky marketable securities as a function of their beta, or systemic risk, according to the capital asset pricing model.

Diversifiable Risk

Relates to the risk that can be reduced or eliminated from a portfolio by holding a variety of investments.