Diversification May Dissipate Value If It Is Wrongly Based On

question 31

Multiple Choice

Diversification may dissipate value if it is wrongly based on:

• A) realizing economies of scope.
• B) rescuing core business.
• C) transferring competencies.
• D) acquisitions and restructuring.
• E) leveraging existing competencies.

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Definitions:

Interest Tax Shield

The reduction in income taxes that results from deducting interest payments on debt from taxable income.

Unlevered Cost of Capital

The cost of capital for a company that has no debt, representing only the cost of equity.

Financial Leverage

The use of borrowed money (debt) to finance the acquisition of assets, with the expectation that the income or capital gain from the new assets will exceed the cost of borrowing.

Par Bonds

Bonds that are issued and redeemed at their face value, or par value, which represents the nominal or dollar value printed on the bond.