Question

The tests of whether a diversified company's businesses exhibit resource fit do not include whether:

a. the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money.

b. the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses.

c. the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating.

d. a business adequately contributes to achieving the corporate parent's performance targets.

e. the corporate parent has or can develop sufficient resource strengths and competitive capabilities to be successful in each of the businesses it has diversified into.

Answer 1

Answer: a. the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money.

Step-by-step explanation:

Resource fit refers to a situation where the various businesses under a company have adequate access to resources from the parent company to enable them to be successful and that the parent company should not only be able to fund these businesses but also have the skills required to run them.

All the options exhibit this except option A. This is because the company should be able to fund its businesses regardless of if it is by debt or otherwise. They just need to be able to fund the businesses should the need arise.