What Rationales for Unrelated Diversification Are Not Likely to Increase

question 33

Multiple Choice

What rationales for unrelated diversification are not likely to increase shareholder value?

• A) reduce risk by spreading the company's investments over a set of truly diverse industries
• B) enable a company to achieve rapid or continuous growth
• C) stabilize earnings; that is,market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses
• D) provide benefits to managers such as high compensation and reduction in employment risk
• E) all of these choices are correct.

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Definitions:

Contribution Format

An income statement format that separates fixed and variable costs, highlighting the contribution margin.

East Segment

A division or geographical area of a business focused on the eastern region, often used in reporting or segmenting operations.

Segment Margin

The profit generated by a particular segment of a business, after deducting direct and allocated expenses specific to the segment.

Segmented Income Statement

A financial statement that breaks down revenues, costs, and profits for different parts of an organization, such as departments or product lines.