CFA Practice Question

There are 86 practice questions for this study session.

CFA Practice Question

The following reasons are good motives for mergers except:

A. Complementary resources.
B. Diversification.
C. Unused tax shields.
Explanation: It is much cheaper and easier for individual shareholders to diversify than having company go through the expensive process of becoming a conglomerate.

User Contributed Comments 4

User Comment
malawyer that's funny - coming from the business I can say that tax reasons are the worst for buying a company (except in very rare liquidation, i.e. "free lunch" szenarios). but I accept the answer "diversification" nonetheless
dream007 Depends on the perspective you are looking at this from....diversification from shareholders point of view is wrong, so i accept the answer. but diversification from the business point of view is surely a good thing. Ambiguous me thinks...
SMcalister Dream007, if the reason is diversification and nothing else then yes, there are all the legal fees and broker fees which make the acquisition expensive. If the business thinks the merger will have other benefits along with diversification, then it's a different story.
LoCo83 Diversification may only be a benefit to an extent, no? In my mind, more diversification in business operations means fewer synergies to take advantage of, and relatively larger costs to sustain.
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