Which of the following are true concerning diversification and/or diversified firms?
I.Diversified firms have higher levels of debt.
II.There is strong evidence that diversification adds value.
III.Investors can diversify their portfolios at lower cost than companies can.
IV.There is strong evidence that diversified firms have smoother cash flows.

Question

Quizplus · Accepted Answer

III is correct because investors can indeed diversify their portfolios at a lower cost than companies due to the availability of various financial instruments and markets. This allows individual investors to spread their investments across different assets more efficiently than a company can diversify its operations. There isn't strong evidence that diversification always adds value to firms or that diversified firms have higher levels of debt. While diversified firms might have smoother cash flows due to the spread of risk across different business units, this statement alone doesn't validate the other options.

Which of the Following Are True Concerning Diversification And/or Diversified