Companies That Pursue Related Diversification Often Receive a Diversification Premium,leading

question 14

Multiple Choice

Companies that pursue related diversification often receive a diversification premium,leading to a stock price valuation that is higher than the sum of their individual business units.This premium indicates that investors:

• A) Are hedging their bets that at least a few of the related businesses will experience high performance.
• B) Believe that firms with related diversification strategies are more likely to be restructured in the future.
• C) Are experiencing the bandwagon effect when it comes to investment choices.
• D) Understand that firms with related diversification strategies are more likely to improve their performance than other diversified firms.

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Definitions:

Tax Revenue

The capital governments gather through the imposition of taxes.

Tax

A compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Flexible Benefits

A program that allows employees to choose from a range of benefit options.

Employee Benefits

Various types of non-wage compensation provided to employees in addition to their normal wages or salaries.