A merger should not take place simply for the purpose of:
A) diversification if shareholders can accomplish the same result on their own portfolios.
B) increasing the debt capacity for the tax shield gain.
C) acquiring free cash flow to be put to use by the acquirer.
D) reducing the cost of production.

Question

Quizplus · Accepted Answer

Diversification as a sole reason for a merger is generally not advisable because shareholders can diversify their investment portfolios independently without the need for the company to merge with another entity.

A Merger Should Not Take Place Simply for the Purpose