1. What is the business term given for a company that generates cash flows over and above its internal requirements and can provide the corporate parent with funds for reinvestment?
A. Cash hog.
B. Cash cow.
C. Cash flow.
D. Free cash flow.
2. The options for allocating a diversified company's financial resources include:
A. making acquisitions to establish positions in new businesses or to complement existing businesses.
B. investing in ways to strengthen or grow existing businesses.
C. funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses.
D. paying off existing debt, increasing dividends, building cash reserves, or repurchasing shares of the company's stock.
E. All of these.
3. Corporate strategy options for already diversified companies include:
A. broadening the company's business scope by making new acquisitions in new industries.
B. divesting weak-performing businesses and retrenching to a narrower base of business operations.
C. restructuring the company's business lineup with a combination of divestitures and new acquisitions to put a whole new face on the company's business makeup.
D. pursuing growth opportunities within the existing business lineup.
E. All of these.
4. When should a business be divested?
A. When the business is worth more to another company than to the parent company.
B. When the parent company would want to get into that business if it were not already in it.
C. When the business provides valuable strategic or resource fits for another company.
D. When shareholders would be better served if the company sells the business for a generous premium.
E. When the business lacks the cross-boundary presence of shared values and cultural compatibility.
5. The tests of whether a diversified company's businesses exhibit resource fit do NOT include:
A. whether the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses.
B. whether a business adequately contributes to achieving the corporate parent's performance targets.
C. whether the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating.
D. whether the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money.
E. whether 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.