Question

Which of the following statements is most correct?

Operating economies are never a motive for mergers.

Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes. Thus, firms with excess cash rarely undertake mergers.

Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger.

Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what's probably a lower cost, diversification benefits is generally not a valid motive for a publicly held firm.

None of the above

Answer 1

Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification such as more stable earnings. However, since shareholders are free to diversify their own holdings at lower cost, such a rationale is generally not a valid motive for publicly held firms.

the above is answer..

because for shareholders , merger would only benefit when there is incremental higher free cash flows after adjusting for all the costs over time