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When a company decides to divest a segment, the underlying reason for this decision could be any one of the following except a
When a company decides to divest a segment, the underlying reason for this decision could be any one of the following except
a. The segment is a chronic loser and the company is unwilling to commit the resources to make it profitable
b. Another company is willing to pay a higher price for the segment than its present value to the current owner
c. As a result of a change in the company's long-range strategy, what was once a good fit is no longer a good fit
d. The realization of economies of scale where average cost declines as volume increases
Expert Solution
Correct Answer:
Option (d) The realization of economies of scale where average cost declines as volume increases are the correct answer because divestitures are made when the company wants to raise the capital for pure business operation and refocusing to achieve the main aim through the business operation.
Incorrect Answer:
Option (a) The segment is a chronic loser and the company is unwilling to commit the resources to make it profitable is not the correct answer
Option( b) Another company is willing to pay a higher price for the segment than its present value to the current owner is not the correct answer
Option( c) As a result of a change in the company's long-range strategy, what was once a good fit is no longer a good fit is not the correct answer
So correct answer is an option (d)
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