The justification for the benefits of diversification from mergers include all of the following except
A) tax loss benefits.
B) lower cost of debt or increased debt capacity.
C) direct risk reduction.
D) liquidity enhancement.

Question

Quizplus · Accepted Answer

A) The justification for these benefits comes in three forms: direct risk reduction, lower cost of debt or increased debt capacity, and liquidity enhancement. To justify a takeover based on operating losses, management would have to argue that the tax savings are over and above what the firm would save using carryback and carryforward provisions. In addition, the IRS will disallow a tax break if it can show that the principal reason for a takeover is tax avoidance, so it is unlikely that the tax advantage could, by itself, be a valid reason to acquire another firm.

The Justification for the Benefits of Diversification from Mergers Include