Phelps_dodge_corp_EXAM

Question 1

Several motives for diversification might be outlined:

Diversification is just a way to grow. Indeed, a number of authorities name growth as the principle motive for diversification. Unlike natural growth which takes time for planning, developing, and implementing a new project, diversification can be achieved fairly quickly with a staff, systems, technology and experience immediately available.

Improve Financial Performance. Large firms make cash that can be invested in other ventures. The firm acts as a banker of an internal capital market - the core business sustains itself on its money making ventures, and uses this cash flow to create new ventures that generate additional profits.

Profit Stability. Acquisition of new business can reduce variations in corporate profits by expanding the corporation's lines of business. This typically occurs when the core business depends on sales that are seasonal or cyclical.

The benefits of diversification are captured...

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