An acquisition completed simply to diversify a firm will:
A) create excessive synergy in almost all situations.
B) lower systematic risk and increase the value of the firm.
C) benefit the firm by eliminating unsystematic risk.
D) benefit the shareholders by providing otherwise unobtainable diversification.
E) generally not add any value to the firm.

Question

Quizplus · Accepted Answer

An acquisition completed solely for the purpose of diversification generally does not add any value to the firm. Diversification through acquisition is only beneficial when the target firm is undervalued or the acquisition creates synergy that benefits the acquiring firm. Without these factors, the acquisition may actually decrease the value of the firm.

An Acquisition Completed Simply to Diversify a Firm Will