Which of the Following Is NOT an Erroneous Rationale for Unrelated

question 101

Multiple Choice

Which of the following is NOT an erroneous rationale for unrelated diversification?

• A) risk reduction by spreading the company's investments over a set of diverse industries
• B) expectations for rapid or continuous growth
• C) stabilize earnings, i.e. market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses
• D) managerial motives including the prospects for higher compensation
• E) growth by acquisition of an undervalued company at a bargain price can deliver enhanced shareholder value

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Definitions:

Long-Term Investment

An asset that a company intends to hold for more than one year for the purpose of generating revenue.

Common Stock

Equity shares of a corporation that provide voting rights and represent a claim on a portion of the company's profits in the form of dividends.

Net Income

The amount of money left over after all expenses and taxes are subtracted from total revenue.

Acquisition Cost

The total cost incurred to acquire an asset, including the purchase price and all other expenses necessary to bring the asset into its intended use.