Retrenching to a Narrower Diversification Base

question 8

Multiple Choice

Retrenching to a narrower diversification base

• A)is usually the most attractive long-run strategy for a broadly diversified company confronted with recession,high interest rates,mounting competitive pressures in several of its businesses,and sluggish growth.
• B)is directed at improving long-term performance by building stronger positions in a smaller number of core businesses.
• C)is an attractive strategy option for revamping a diverse business lineup that lacks strong cross-business financial fit.
• D)is sometimes an attractive option for deepening a diversified company's technological expertise and supporting a faster rate of product innovation.
• E)is a strategy best reserved for companies in poor financial shape.

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Definitions:

Stock Repurchase

An action taken by a corporation to repurchase its own shares from the market, thereby decreasing the total number of shares available.

Residual Dividend Policy

A financial strategy where dividends paid to shareholders are based on the earnings left after all operational and capital expenses, as well as growth investments, have been covered.

Target Capital Structure

The mix of debt, preferred stock, and common equity that a company aims to hold to minimize its cost of capital and maximize its market value.

Forecasted Net Income

Forecasted net income is an estimate of a company's future profits after all expenses and taxes have been subtracted from revenues.