In making a decision to diversify,managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?
A)economies of scope
B)desire for increased compensation
C)reduced managerial risk
D)low performance

Question

Quizplus · Accepted Answer

Economies of scope refer to cost savings and improved efficiency that can be achieved by using shared resources or capabilities across different businesses or products within a firm. This can lead to increased profitability and value for the firm. B, desire for increased compensation, is not a value-creating reason as it only benefits the individual manager and not the firm as a whole. C, reduced managerial risk, is also not a value-creating reason as it focuses on protecting the manager's job rather than creating value for the firm. D, low performance, is not a reason to diversify but rather a signal that changes may need to be made within the existing business to improve performance.

In Making a Decision to Diversify,managers Should Use Value-Creating Reasons