Does Diversification Achieved Through a Merger Create Value? Why or Why

question 14

Multiple Choice

Does diversification achieved through a merger create value? Why or why not?

• A)Yes,diversification lowers the volatility of a firm's earnings which,increases the firm's value to shareholders.
• B)Yes,diversification lowers the total risk of a firm which,provides a compensable benefit.
• C)Yes,diversification increases a firm's earnings which,creates value for the firm.
• D)No,diversification lowers unsystematic risk but has no real value to shareholders.
• E)No,diversification lowers a firm's earnings and thus destroys value.

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Definitions:

Correlation

A numerical value indicating how much two variables vary in conjunction with each other.

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A unit of time equal to 60 minutes or 3600 seconds.