The Basic Premise of Unrelated Diversification Is That

question 48

Multiple Choice

The basic premise of unrelated diversification is that

• A)the least risky way to diversify is to seek out businesses that are leaders in their respective industry.
• B)the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale.
• C)the best way to build shareholder value is to acquire businesses with strong cross-business financial fit.
• D)any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity.
• E)the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.

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Definitions:

Retirement Funds

Retirement funds are financial plans that allow individuals to save money for their retirement years, typically consisting of a mix of stocks, bonds, and other assets.

Investment Policy Statement

A document drafted between a portfolio manager and a client that outlines general rules for the manager, including the client's objectives, risk tolerance, time horizon, and liquidity needs.

Scope and Purpose

"Scope and Purpose" defines the aims and boundaries of a project, policy, program, or strategy, outlining what it intends to achieve and the extent of its application.