Which of the Following Benefits of Diversification Explains the Idea

question 33

Multiple Choice

Which of the following benefits of diversification explains the idea that a firm with many business lines can reduce swings in value because it receives only a small percentage of its revenue from any one of those business lines?

• A)Use of internal capital markets
• B)Economies of scale and scope
• C)Economizing on transaction costs
• D)Diversifying shareholder portfolios
• E)Identifying undervalued firms

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Definitions:

Capital Balances

Represents the amount of money that owners have invested in a company minus any withdrawals they have made from the company.

Salary Allowances

Fixed sums or benefits paid in addition to a base salary, often determined by specific terms of employment.

Capital Accounts

Accounts that track the equity ownership of partners or shareholders in a business, reflecting contributions, withdrawals, and the share of profits or losses.

Ownership Equity

Refers to the residual interest in the assets of an entity after deducting liabilities, representing the owner's claim on the business.