Suppose that one of Disney’s business units is a chain of sound studio

QUESTION

Suppose that one of Disney’s business units is a chain of sound studios. The studios have low profit potential, and the chain commands a relatively small share of the market.

On these grounds, Disney is considering whether to sell the chain. Which of the following, if true, most strongly suggests that Disney should keep the chain instead?
A) The chain has reduced its operating loss in each of the last three years.
B) The chain has penetrated the market in coastal areas, but not inland areas.
C) Other Disney companies use the chain’s studios for a wide variety of projects, resulting in significant cost savings for Disney.
D) The chain uses the most up-to-date technology in its sound studios.
E) The chain staffing levels are comparable to those of similar companies in the industry.

ANSWER

Answer: C
Explanation: C) Normally, low profit potential and low market share indicate that selling might be the best option. But Choice C suggests a synergy benefit that provides a reason to keep the unit. If Choice C were true, then Disney might benefit from owning the unit despite low profits and low market share. Choice A says that things are not as bad as they used to be, but that’s not an argument to keep it around. Losses are still bad, even if they are smaller than they were before. Choice B distinguishes coastal from inland areas, but there’s no reason to believe that this makes a difference. Choice D, if anything, weakens the argument. If the company can’t succeed even though it has good equipment, then it might be time to sell it. Choice E says that staffing levels are typical for the industry, but that doesn’t tell us if Disney should keep the unit or not.