Which of These Makes the Following a True Statement? Diversification

question 52

Multiple Choice

Which of these makes the following a true statement? Diversification resulting from a merger can:

• A) Make the debt of the merged firm more risky, thus lowering the cost of capital.
• B) Make the debt of the merged firm less risky, thus lowering the cost of capital.
• C) Make the debt of the merged firm less risky, thus raising the cost of capital.
• D) None of these make the statement true.

---

Definitions:

Hedge Transaction

A financial transaction designed to reduce the risk of adverse price movements in an asset.

Spot Rates

The prevailing price for a specific currency that can be traded immediately.

Journal Entries

Journal entries are records of financial transactions in accounting, documented in chronological order, indicating accounts affected, amounts, and a brief description of the transaction.

Forward Rate

An agreed-upon price for a currency or asset to be exchanged at a future date, used for hedging or speculation.