The Two Biggest Drawbacks or Disadvantages of Unrelated Diversification Are

question 17

Multiple Choice

The two biggest drawbacks or disadvantages of unrelated diversification are

• A) underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does not know all that much about.
• B) insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses it has diversified into.
• C) volatile sales and profits and making the mistake of diversifying into too many cash cow businesses.
• D) the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides.
• E) overinvesting in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.

Evaluate and compare different loan offers based on interest rates, compounding periods, and payment schedules.

Understand the financial calculations related to annuities, perpetuities, and consol bonds.

Analyze the impact of payment frequency on the savings and loans.

Grasp the concepts of present and future values of money in decision making.

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Definitions:

Net Income

The total profit or loss of a business after all expenses, taxes, and costs have been subtracted from total revenues.

Initial Project Expenditures

The initial costs incurred when starting a project, often including materials, labor, and other expenses.

Worst-case Scenario

The most adverse, negative outcome that could possibly occur in a situation, often used in risk assessment and planning.

Variable Costs

Costs that change in proportion to the level of production or sales. They increase as production increases and decrease as production decreases.