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:

Conodonts

Extinct, simple fishlike chordates with large eyes and tooth-like hooks; may have been early vertebrates.

Toothlike Hooks

Structures resembling teeth or hooks, often used by plants or animals for attachment or predation.

Gill Arches

Skeletal elements that support the gills in fish and some amphibians, crucial for the respiration process in aquatic organisms.

Lateral Lines

A sensory system found in aquatic vertebrates, used to detect movement and vibration in the surrounding water.