What are the three test justifying a diversity strategy?
Ans- Three test justifying strategies are:
01. Industry attractive test- In depends mainly on favorable competitive conditions and a market environment conductive to earning profit that are as good or better than present business.
02. Cost of entry test : the cost to entry in to the target market must not be high. Entry barriers for new company start up company are likely to be high attractive industry. Paying too much for acquiring a company reduces company rate of return and also shareholder value.
03. Better of test: I a diversify company cannot earn better from a new business then company should not diversify. Diversification can not provide shareholder value unless it produces a syregyical profit. It incurs two company perform better value together then what each could earned on its own.
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