Different businesses are said to be unrelated when a

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Financial Reporting, Financial Statement Analysis and Valuation
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Chapter 6 / Exercise 6.6
Financial Reporting, Financial Statement Analysis and Valuation
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30. Different businesses are said to be "unrelated" when A. they are in different industries. B. the products of the different businesses are not bought by the same types of buyers or sold in the same types of retail stores. C. the products of the different businesses satisfy different buyer needs. D. the businesses have different supply chains and different types of suppliers. E. there is an absence of competitively valuable strategic fits between their respective value chains. AACSB: Analytic Blooms: Remember Difficulty: 2 Medium Learning Objective: 08-03 Become aware of the merits and risks of corporate strategies keyed to unrelated diversification. Topic: Diversifying into Unrelated Businesses 31. The basic premise of unrelated diversification is that A. the least risky way to diversify is to seek out businesses that are leaders in their respective industry. B. the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale. C. the best way to build shareholder value is to acquire businesses with strong cross-business financial fit. D. any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity. E. the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-03 Become aware of the merits and risks of corporate strategies keyed to unrelated diversification. Topic: Diversifying into Unrelated Businesses
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Financial Reporting, Financial Statement Analysis and Valuation
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Chapter 6 / Exercise 6.6
Financial Reporting, Financial Statement Analysis and Valuation
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32. With an unrelated diversification strategy, the types of companies that make particularly attractive acquisition targets are A. financially distressed companies with good turnaround potential, undervalued companies that can be acquired at a bargain price, and companies that have bright growth prospects but are short on investment capital. B. companies offering the biggest potential to reduce labor costs. C. cash cow businesses with excellent financial fit. D. companies that are market leaders in their respective industries. E. companies that are employing the same basic type of competitive strategy as the parent corporation's existing businesses. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 08-03 Become aware of the merits and risks of corporate strategies keyed to unrelated diversification. Topic: Diversifying into Unrelated Businesses

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