Question

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 will produce a 1 + 1 =3 outcome such that the company’s different businesses perform better together than apart and the whole ends up being greater than the sum of the parts.
E) assessing whether the diversification move will benefit shareholders due to gains in earnings per share and faster stock price appreciation.

Answer 1

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves evaluating whether the diversification move will produce a 1 + 1 =3 outcome such that the company’s different businesses perform better together than apart and the whole ends up being greater than the sum of the parts.

Option D is correct

Step-by-step explanation:

The stronger measure is explicitly satisfied by a corporate strategy focused on collaborative operations, as business entities are obtaining tangible benefits from other businesses within the organization. It also passes the entry cost criterion by reducing the cost of addressing internal entry barriers.

Either the new unit needs to benefit from its relationship with the company or vice versa.

Naturally, most businesses must ensure that some of the measures match their planned approaches.