SM Final Review Questions

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6.1. Brinker International operates restaurants in several different segments of the casual dining
market. This is
a. a relatively high level of diversification.
b. an example of product diversification.
c. unlikely to reduce variability in the firm's profitability since the restaurants are all in the
casual dining category.
d. an example of related linked diversification.

b. an example of product diversification.

6.2. On the most basic level, corporate-level strategy is concerned with ____ and how to manage
these businesses.
a. whether the firm should invest in global or domestic businesses
b. what product markets and businesses the firm should be in
c. whether the portfolio of businesses should generate immediate above-average returns or
should be troubled businesses which will create above-average returns only after restructuring
d. whether to integrate backward or forward.

b. what product markets and businesses the firm should be in

6.3. Which acquisition would be considered the LEAST related?
a. a candy manufacturer purchases a chemical laboratory specializing in food flavorings.
b. a chain of garden centers acquires a landscape architecture firm.
c. a hospital acquires a long-term care nursing home.
d. an upscale "white-tablecloth" restaurant chain acquires a travel agency

d. an upscale "white-tablecloth" restaurant chain acquires a travel agency

6.4. The more "constrained" the relatedness of diversification,
a. the less likely the firm's portfolio of businesses will reduce the firm's variability in
profitability.
b. the wider the variation in the portfolio of businesses owned by the firm.
c. the more links there are among the businesses owned by an organization.
d. lower the proportion of total organizational revenue derived from the dominant-business.

c. the more links there are among the businesses owned by an organization.

6.5. Which of the following is NOT a limit to vertical integration?
a. bureaucratic costs
b. the loss of flexibility through investment in specific technologies
c. capacity balance and coordination problems from changes in demand
d. imitation of core technology by potential competitors

d. imitation of core technology by potential competitors

7.6. Horizontal acquisitions in the airline industry are typically intended to
a. take advantage of innovations created by the other firm.
b. reduce some of the overcapacity in the industry.
c. control more parts of the value chain.
d. overcome barriers to entry.

b. reduce some of the overcapacity in the industry.

7.7 Foreign firms seeking to acquire U.S. firms are interested in all of the following EXCEPT
a. gaining access to the U.S. company brand names.
b. gaining access to critical resources held by U.S. companies.
c. diversifying into unrelated industries in order to broaden their market scope.
d. acquiring relationships with dealers through horizontal acquisitions.

c. diversifying into unrelated industries in order to broaden their market scope.

7.8 Researchers have found that shareholders of acquired firms often
a. earn above-average returns.
b. earn below-average returns.
c. earn close to zero as a result of the acquisition.
d. are not affected by the acquisition.
.

a. earn above-average returns.

7.9. In a merger
a. one firm buys controlling interest in another firm.
b. two firms agree to integrate their operations on a relatively coequal basis.
c. two firms combine to create a third separate entity.
d. one firm breaks into two firms.

b. two firms agree to integrate their operations on a relatively coequal basis.

7.10 The fastest and easiest way for a firm to diversify its portfolio of businesses is through
acquisition because
a. of barriers to entry in many industries.
b. it is difficult for companies to develop products that differ from their current product line
c. innovation in both the acquired and the acquiring firm is enhanced by the exchange of
competencies resulting from acquisition
d. unrelated acquisitions are usually uncomplicated because the acquired firm is allowed to
continue to function independently as it did before acquisition.

b. it is difficult for companies to develop products that differ from their current product line

7.11 Related acquisitions to build market power
a. are likely to undergo regulatory review.
b. are rarely permitted to occur across international borders.
c. typically involve a firm purchasing one of its suppliers or distributors.
d. concentrate on capturing value at more than one stage in the value chain.

a. are likely to undergo regulatory review.

8. 12. International strategy refers to a(an)
a. action plan pursued by American companies to compete against foreign companies operating in the United States.
b. strategy through which the firm sells products in markets outside the firm's domestic market.
c. political and economic action plan developed by businesses and governments to cope with
global competition.
d. strategy American firms use to dominate international markets.

b. strategy through which the firm sells products in markets outside the firm's domestic market.

8. 13. U.S. companies moving into the international market need to be sensitive to the need for local
country or regional responsiveness due to
a. increasing rejection of American culture across much of the world.
b. the sophistication of the international consumer due to the Internet.
c. customization required by cultural differences.
d. the increasing loss of economies of scale.

c. customization required by cultural differences.

8. 14. Which of the following is NOT a motive for firms to become multinational?
a. to take advantage of potential opportunities to expand the market for the firm's products.
b. to secure needed resources.
c. to avoid high domestic taxation on corporate income.
d. increasing universal product demand.

c. to avoid high domestic taxation on corporate income.

8.15. Which of the following is NOT a factor pressuring companies for local responsiveness?
a. the need for local repair and service to customers
b. customization due to cultural differences
c. government pressure for firms to use local sources for procurement
d. availability of low labor costs

d. availability of low labor costs

8.16. The choices that a firm has for entering the international market include all of the following
EXCEPT:
a. exporting.
b. licensing.
c. leasing.
d. acquisition.

c. leasing.

9.17. Firms participate in strategic alliances for all the following reasons EXCEPT to
a. enter markets more quickly.
b. acquire technology.
c. create values they could not develop acting independently.
d. retain tight control over intangible core competencies.

d. retain tight control over intangible core competencies.

9.18. When using business-level and corporate-level cooperative strategies, a firm's primary intent
is to develop strategic alliances that
a. enhance the firm's reputation in the marketplace.
b. are long-lived.
c. will reduce the firm's political risk.
d. create a competitive advantage.

d. create a competitive advantage.

9.19. In a(an) ____ the firms involved own equal shares of a newly-created venture.
a. equality-based strategic alliance
b. non-equity strategic alliance
c. joint venture
d. equity strategic alliance

c. joint venture

9.20. A state-wide alliance of independent hospitals has formed in order to do group purchasing of
medical supplies. Group purchasing allows the hospital alliance to negotiate lower prices with
suppliers because of the large quantity of materials ordered. This is an example of the advantage
of ____ resulting from an alliance.
a. explicit collusion.
b. economies of scale.
c. opportunistic behavior.
d. distribution opportunities.

b. economies of scale.

9.21. Firms entering into synergistic strategic alliances expect to attain
a. technological complexity.
b. economies of scope.
c. monopolistic market power.
d. learning curve efficiencies.

b. economies of scope.

10.22. The top management team at Sierra Infusion is concerned about the declining performance of
firms in their industry. The team members are becoming concerned about the security of their
jobs at Sierra Infusion. At a meeting over dinner, the top management team agrees to go to the
board of directors with a proposal for
a. increased diversification of Sierra Infusion.
b. the addition of outside directors to the board.
c. increased shareholder participation in decision making.
d. greater concentration on Sierra's core industry.

a. increased diversification of Sierra Infusion.

10.23. The separation between firm ownership and management creates a(n) ____ relationship.
a. governance
b. control
c. agency
d. dependent

c. agency

10.24. A primary objective of corporate governance is to
a. determine and control the strategic direction of an organization, so that the top executives are focused on maximizing corporate profits.
b. ensure that the interests of top-level managers are aligned with the interests of shareholders.
c. lobby legislators to pass laws that are aligned with the organization's interests.
d. resolve conflicts among corporate employees.

b. ensure that the interests of top-level managers are aligned with the interests of shareholders.

10.25. Which of the following is NOT an internal governance mechanism?
a. the board of directors
b. ownership concentration
c. executive compensation
d. the market for corporate control

d. the market for corporate control

10.26. A major conflict of interest between top executives and owners, is that top executives wish to
diversify the firm in order to ____, while owners wish to diversify the firm to ____.
a. generate free cash flows, reduce the risk of total firm failure
b. increase the price of the firm's stock, increase the dividends paid out from free cash flows
c. reduce the risk of total firm failure, reduce their total portfolio risk
d. reduce their employment risk, increase the company's value

d. reduce their employment risk, increase the company's value

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