Chapter 16

Question 1

Capital asset pricing model CAPM

Answer 1

The risk that is relevant to determining the price of a security is not the overall risk (variance) of the security’s return,but systematic risk:that part of the variance of the return that is correlated with overall market returns,this is measured by the securuty’s beta coefficient

Question 2

Porter’s Essential tests

Answer 2

Used to decide whether diversification will truly create shareholder value,3 types of test: attractiveness test(the industries chosen for diver. must be structurally attractive or capable of being made attractive),cost-of-entry test(the cost of entry must not capitalize all future profits),better-off test(either the new unit must gain comp.adv. from its link with the corporation,or vice versa)

Question 3

Critical linkages

Answer 3

Linkages that arise through the sharing of resources and capabilities across different businesses

Question 4

Shared service organization

Answer 4

Supply common administrative and technology services to the operating businesses

Question 5

Brand extension

Answer 5

Exploiting a strong brand across additional products

Question 6

Parenting value

Answer 6

The resources and general management skills possessed by the parent company,holding company or corporate center that is thinking of diversification into a new business

Question 7

Private equity fund

Answer 7

Raise money into a fund that is then used to buy businesses