When Diversification Combines Two Businesses in Different Industrial Sectors,the Key

question 11

Multiple Choice

When diversification combines two businesses in different industrial sectors,the key determinant of whether the diversification creates value is whether the diversification:

• A)Changes the debt/equity ratio of the combined company.
• B)Is between culturally-compatible businesses.
• C)Causes management to lose its focus on its core business.
• D)Enhances the competitive advantage of either or both of the two businesses.

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Definitions:

Normal Balance

Normal Balance is the side (debit or credit) where increases to the account are recorded, depending on the account type.

Permanent/Temporary

Describes accounts in financial reporting; permanent accounts show ongoing financial status, while temporary accounts track revenues, expenses, and dividends over a specific period.

Normal Balance

The side (debit or credit) of an account that increases its balance, reflecting the account's role in the accounting equation.

Financial Statement

A formal record of the financial activities and position of a business, individual, or other entity, detailing assets, liabilities, revenue, and expenses over a specific period.