A Firm Practicing Unrelated Diversification Can Make Better Capital Allocations

question 35

Multiple Choice

A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT:

• A) corporate headquarters can allocate capital according to more specific criteria than is possible with external market allocations.
• B) corporate headquarters has more complete information about the subsidiary businesses than the external capital market.
• C) the firm can acquire other firms with innovative products instead of allocating capital to research and development.
• D) corporate headquarters can more effectively discipline underperforming management teams through resource allocation than can the external market.

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Definitions:

Disobeying

The act of not following rules, orders, or instructions as given.

Belt

A strip of material, typically leather or fabric, worn around the waist to support or hold up clothing.

Emotional Neglect

A form of child neglect involving a consistent failure to provide emotional support, attention, and affection to a child.

Drug User

An individual who consumes substances that are illegal or potentially harmful to health, whether for recreational, medicinal, or other purposes.