The Better-Off Test for Evaluating Whether a Particular Diversification Move

question 69

Multiple Choice

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves

• A) assessing whether the diversification move will make the company better off because it will produce a greater number of core competencies.
• B) assessing whether the diversification move will make the company better off by improving its balance sheet strength and credit rating.
• C) assessing whether the diversification move will make the company better off by spreading shareholder risks across a greater number of businesses and industries.
• D) evaluating whether the diversification move offers potential for the company's existing businesses and new businesses to perform better together under a single corporate umbrella.
• E) assessing whether the diversification move will benefit shareholders due to gains in earnings per share and faster stock price appreciation.

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Definitions:

Trait Development

The evolution or growth of enduring characteristics or tendencies that influence an individual's behavior across situations.

Perception

The process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment.

Incremental Theory

The belief that abilities can be developed through dedication and hard work, creating a love of learning and a resilience necessary for great accomplishment.

Entity Theory

The belief that personal qualities such as intelligence and ability are fixed and cannot change significantly.