When a firm is diversifying through acquiring a firm in another industry,the critical issue is whether the synergies that can be realized will offset the acquisition premium paid.

Question

Quizplus · Accepted Answer

This statement is true. When a firm acquires a company in another industry, there may be potential synergies in terms of cost savings, increased market power, and access to new markets or technologies. However, the acquisition price must be justified by the expected benefits and potential future earnings of the combined companies. If the synergies do not outweigh the acquisition premium paid, the acquisition may not be a wise investment decision.

When a Firm Is Diversifying Through Acquiring a Firm in Another