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

question 12

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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