The Three Tests for Judging Whether a Particular Diversification Move

question 54

Multiple Choice

The three tests for judging whether a particular diversification move can create value for shareholders are the

• A)attractiveness test, the profitability test, and the shareholder value test.
• B)strategic fit test, the competitive advantage test, and the return-on-investment test.
• C)resource fit test, the profitability test, and the shareholder value test.
• D)attractiveness test, the cost of entry test, and the better-off test.
• E)shareholder value test, the cost of entry test, and the profitability test.

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Definitions:

Security's Value

The market worth or price at which a financial security, such as a bond or stock, can be bought or sold.

Future Cash Flows

Projected movement of money into and out of a business, essential for budgeting, financial planning, and investment analysis.

Future Cash Flows

The projected cash receipts and payments a company expects to incur over a certain period in the future.

Bond Ratings

Bond ratings are assessments made by credit rating agencies about the creditworthiness of a bond issuer, which affect the interest rates bonds carry.