Which of these makes the following a true statement? Diversification resulting from a merger can:

Question

Quizplus · Accepted Answer

Diversification resulting from a merger can reduce the overall risk of the merged firm, leading to a lower cost of capital. This can be achieved by spreading the risk across different business segments and lowering the probability of default on the debt. Therefore, Option B is the correct statement. Option A is incorrect because increased risk will lead to a higher cost of capital. Option C is also incorrect because lower risk will lead to a lower cost of capital, not a higher one. Option D is not applicable as we have already established that Option B is correct.

Which of These Makes the Following a True Statement? Diversification