When a Firm Diversifies into ________ Businesses,the Primary Potential Benefits

question 69

Multiple Choice

When a firm diversifies into ________ businesses,the primary potential benefits to be derived come from ________ relationships where value creation is derived from the corporate office.

• A) unrelated; hierarchical
• B) related; hierarchical
• C) related; horizontal
• D) unrelated; horizontal

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, determined by the proportion of fixed versus variable costs a company has.

Operating Income

Earnings from a company’s core business operations, excluding deductions for interest and taxes.

Variable Costs

Costs that fluctuate in direct proportion to changes in levels of production or sales volumes.

Fixed Costs

Financial obligations like rent, wages, and insurance that are stable and do not vary with the level of goods manufactured or sold.