Which of the Following Is Not Among the Disadvantages and Managerial

question 98

Multiple Choice

Which of the following is not among the disadvantages and managerial problems encountered by companies pursuing unrelated diversification strategies?

• A) Knowing so little about the industries in which each business competes, that management is unable to properly evaluate strategic proposals put forth by business-unit managers
• B) Being too unfamiliar with the issues and problems facing each subsidiary to effectively pick business-unit heads having the requisite combination of managerial skills and know-how
• C) The strain it places on corporate-level management in trying to stay on top of fresh industry developments and the strategic progress and plans of each business subsidiary
• D) Ending up with too many cash hog businesses (as compared to related diversification strategies where cash hog businesses are rare)
• E) The potential that corporate management will not know how to bail a business subsidiary that runs into deep trouble-because the company has diversified into businesses that corporate management has little experience or expertise in running

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Definitions:

EPS

Earnings Per Share; a company's profit divided by the outstanding shares of its common stock, indicating company profitability on a per-share basis.

EBIT

Earnings Before Interest and Taxes, a measure of a firm's profitability that excludes interest and income tax expenses.

EBIT

A profitability metric that calculates a company's profits excluding interest and income tax expenses.

Degree of Financial Leverage

A ratio indicating the degree to which a company uses borrowed funds to finance its operations, affecting potential returns and risk.