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Valuation: Measuring and Managing the Value of Companies, Fifth Edition
Chapter 19 Solutions
Corporate Portfolio Strategy
1. Different owners have different skills and goals. Thus, one owner may be able to
innovate and to lead the company in a way to increase cash flows and growth. When a
2. The five potential sources of value are (1) unique links with other businesses, (2)
3. One impediment to matching the best potential owner is not having a complete list of all
potential owners. Without that list, the best owner may be overlooked. A second
4. The story of Duracell in the 1970s and 1980s shows how different owners can benefit a
particular business more at different points in time. Known as P.R. Mallory for decades,
the battery maker took on the name Duracell in 1978 when it was acquired by Dart
5. A firm’s needs evolve as it goes through its life cycle. For example, the best company to
acquire a developing firm that consumes natural resources might be a company that has
6. The steps in constructing a portfolio are (1) assess the current portfolio and determine
7. Diversification is intrinsically neither good nor bad. However, propositions that
diversification adds value exist, and those propositions usually rest on the potential
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businesses to either sustain or invest in underperforming businesses. There isn’t evidence
that this is the case, though. Thus, pursuing diversification for its own sake may lower
8. Like the invisible hand of Adam Smith, society benefits from the resources of a company
being directed to the manager who best can maximize the value of the company.
