A sound justification for unrelated diversification is<\/p>\n\n\n\n
Multiple Choice<\/p>\n\n\n\n
a. based on the premise that this strategy can result in risk reduction by spreading a company’s investments over a set of diverse industries.
b. based on the premise that this strategy can support managerial motives including prospects for higher compensation.
c. based on the premise that this strategy will help to stabilize earnings, i.e. offsetting market downtrends in some of the company’s businesses by cyclical upswings in its other businesses.
d. based on the premise that this strategy could resuscitate struggling companies whose operations can be turned around with the aid of the parent company’s financial resources and managerial know-how.
e. based on the premise that this strategy can help meet or exceed the company’s expectations for rapid or continuous growth.<\/p>\n\n\n\n
The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n The correct answer is:<\/p>\n\n\n\n a. based on the premise that this strategy can result in risk reduction by spreading a company’s investments over a set of diverse industries.<\/strong><\/p>\n\n\n\n Unrelated diversification refers to the corporate strategy where a company expands into businesses or industries that are not related to its existing operations. This approach is different from related diversification, where companies expand into businesses that have some form of connection with their existing products, services, or operations.<\/p>\n\n\n\n The primary justification for pursuing unrelated diversification is the reduction of business risk through diversification. By spreading investments across different industries that are not correlated, a company can reduce its vulnerability to the performance of any single sector. The premise is that, if one industry faces a downturn or operates in a cyclical manner (i.e., its performance is highly sensitive to economic fluctuations), other industries the company is invested in may not be similarly affected. For example, if a company’s primary business is in a volatile industry, such as oil or real estate, it can balance this by diversifying into more stable or counter-cyclical industries, such as healthcare or utilities.<\/p>\n\n\n\n This risk-reduction strategy is particularly appealing when companies face high levels of risk in their core business or operate in highly competitive and unpredictable markets. By diversifying into unrelated industries, companies aim to create a portfolio of investments where the performance of one industry can offset the underperformance of another. Essentially, the strategy helps stabilize the overall financial performance of the company, ensuring that the risks associated with each industry are not concentrated in a single business area.<\/p>\n\n\n\n The other options listed (b, c, d, e) reflect managerial goals or other business objectives that may motivate diversification, but they do not directly speak to the core reasoning behind unrelated diversification. While these motives can play a role in the decision-making process, the principal justification is risk reduction, as noted in option (a).<\/p>\n","protected":false},"excerpt":{"rendered":" A sound justification for unrelated diversification is Multiple Choice a. based on the premise that this strategy can result in risk reduction by spreading a company’s investments over a set of diverse industries.b. based on the premise that this strategy can support managerial motives including prospects for higher compensation.c. based on the premise that this […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-209608","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/209608","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=209608"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/209608\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=209608"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=209608"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=209608"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Explanation:<\/h3>\n\n\n\n