A company focuses on ONE MAJOR PRODUCT ==> relies too heavily on ONE PRIMARY SOURCE OF INCOME ==> an undiversified income stream leave a company susceptible to major FLUCTUATION IN CASH FLOW

Basically, we need to follow a pattern: one product ==> one source of income ==> fluctuation in cash flow.

ANALYZE EACH ANSWER:

• a local messenger service known for its speedy deliveries is forced to lay off twenty percent of its work force after a rise in local taxes encourages many local businesses to move out of state
Correct. This company focuses on its major product. Its cash flow would be affected if some unfavorable factors happened.

• an advertising agency loses one of its clients
Wrong. The loss of one client does not affect too much to the company's cash flow.

• a holding company that owns a car rental agency and a national doughnut chain is now interested in purchasing a professional basketball team
Wrong. This company actually diversifies its business.

• a construction company opts to use non-union labor to increase its profits
Wrong. Nothing about one product & one source of income.

• a specialty sandwich store decides to open franchises throughout the country that will focus on using local ingredients[/quote]
Wrong. SHELL GAME. you may pick E because of a word "a specialty" and you assume the company has ONLY ONE product. But actually, this company diversifies its business because it focus on using local ingredients. If one store has problem with its local ingredient, it does not affect other stores in different areas.