Acquisition Is the Preferred Mode of Diversification for Most Firms

question 18

Multiple Choice

Acquisition is the preferred mode of diversification for most firms because:

• A)For companies with high price/earnings ratios,acquiring companies in other sectors that have low price/earnings ratios offers an attractive means of boosting market capitalization
• B)Empirical research shows that diversifying acquisitions typically create significant value for the acquiring firm
• C)The alternative of acquiring a minority stake does not give the diversifying firms significant decision-making influence over the target firm
• D)The alternative of setting up a new enterprise in the industry to be entered is slow and risky.

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