When a Diversified Firm Concentrates on Its Core Businesses, the Market

question 21

Multiple Choice

When a diversified firm concentrates on its core businesses, the market typically values its stock higher. What could one infer from this?

• A)Stockholders should sell their stocks
• B)Diversified firms cannot be profitable
• C)The market believes that those parts of the diversified firm sold off were being managed so badly they were reducing long term profit prospects
• D)Growing economic turbulence has increased the cost of managing diversified firms

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Definitions:

Job-Order Costing

A costing method used to determine the cost of producing specific products or jobs, assigning direct materials, labor, and overhead costs to individual jobs based on actual expenses incurred.

Predetermined Overhead Rate

An estimated rate used for allocating fixed and variable overhead costs to products or services based on expected activity levels.

Automated Jointer

A machine tool used in woodworking for making flat surfaces along the lengths of boards, which operates automatically.

Capacity

The maximum level of output that a company can sustain to make a product or provide a service, given current resources and constraints.