A Big Advantage of Related Diversification Is That It

question 68

Multiple Choice

A big advantage of related diversification is that it

• A)offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present competitively valuable cross-business relationships.
• B)is less capital intensive and usually more profitable than unrelated diversification.
• C)involves diversifying into industries having the same kinds of key success factors.
• D)is less risky than either vertical integration or unrelated diversification due to lower capital requirements.
• E)passes the industry attractiveness test and thus offers the best route to 2 + 2 = 4 benefits.

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Definitions:

Installment Method

The installment method is a tax provision allowing taxpayers to spread out income recognition over several years when reporting sales or transfers of property, helping to manage tax liability.

Depreciation Recapture

A tax provision where depreciation taken on an asset is taxed as ordinary income when the asset is sold.

Adjusted Basis

The original cost of an asset, adjusted for factors like improvements or depreciation, used to calculate capital gains or losses for tax purposes.

Recognized Gain

The income gained through the disposal of an asset, which is required to be declared for taxation reasons.