Question

The attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether

conditions in the target industry are sufficiently attractive to permit earning consistently good profits and returns on investment. the potential diversification move will boost the company's competitive advantage in its existing business.
shareholders will view the contemplated diversification move as attractive.
key success factors in the target industry are attractive.
there are attractive strategic fits between the value chains of the company's present businesses and the value chain of the new business it is considering entering.

Answer 1

The correct answer is letter "A": conditions in the target industry are sufficiently attractive to permit earning consistently good profits and returns on investment.

Step-by-step explanation:

Investors are in constant search of companies they can put their money in to obtain profits and increase their wealth. Ratios such as the Debt-to-Equity ratio, Price-Earnings ratio, Return-on-Equity, or Operating profit margin are reviewed to decide in what company to invest and in which one not to.

Besides, the overall performance of the industry of the target company is analyzed by investors to find out if there are opportunities for growth which may make the firm more attractive.