Question

One of the suggested advantages of an unrelated diversification strategy is that it A. E) facilitates capturing the financial fits among sister businesses (as compared to a strategy of related diversification). B. B) spreads the stockholders' risks across a group of truly diverse businesses. C. A) expands a firm's competitive advantage opportunities to include a wider array of businesses. D. C) increases strategic fit opportunities and the potential for a 1 + 1 = 3 outcome on the bottom line. E. D) results in having more cash cow businesses than cash hog businesses.

Answer 1

Answer:

B. Spreads the stockholder’s risks across a group of truly diverse businesses.

Explanation:

Diversification is a risk management strategy whereby there is a mix of a wide variety of investments in a portfolio. This limits the exposure to any single type of risk. For example, instead of investing in 3 different hotels in the tourism industry, investing in one hotel in the tourism industry, another business in the healthcare industry and another business in the education industry. That way, if any factor causes a drop in the tourism industry, only one investment would be affected negatively. There would still be profits from the healthcare and education industry. The positive performance of some investments will neutralize the negative performance of others.