The Three Tests for Judging Whether a Particular Diversification Move

question 36

Multiple Choice

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

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

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Definitions:

Consolidation Adjustment Entries

are journal entries made in the preparation of consolidated financial statements to eliminate transactions between entities within the same group, ensuring accurate representation of financials as if the group was a single entity.

Intragroup Transactions

Financial transactions that occur between enterprises under common control, typically within the same corporate group.

Ownership Interest

The legal rights and claims a person or entity has over property or a company, often evidenced by shares or other forms of equity.

Non-controlling Interest

A portion of equity ownership in a subsidiary not owned by the parent company, representing a minority interest's share in the subsidiary's net assets and earnings.