A Big Advantage of Related Diversification Is That

question 39

Multiple Choice

A big advantage of related diversification is that:

• A) it 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) it is less capital intensive and usually more profitable than unrelated diversification.
• C) it involves diversifying into industries having the same kinds of key success factors.
• D) it is less risky than either vertical integration or unrelated diversification due to lower capital requirements.
• E) it passes the industry attractiveness test and thus offers the best route to 2 + 2 = 4 benefits.

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Definitions:

Translation Loss

A decrease in the value of foreign currencies held by a company because of changes in exchange rates, affecting the financial statements when consolidating.

Expropriates

The action of a government taking privately owned property, usually without fair compensation.

Multinational Firm

A company that operates in multiple countries, utilizing a global strategy to manage its operations and market its products or services.

True Value

The actual, inherent value of an asset, not influenced by market movements, speculation, or other external factors.