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Which of the following are not legitimate synergies for acquisition: Group of answer choices Tax Savings...

Which of the following are not legitimate synergies for acquisition: Group of answer choices

Tax Savings from Operating Losses

Diversification

Economies of scope

Efficiency Gains

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Homework Answers

Answer #1

The correct answer is Diversification

Synergy is the potential additional value that can be created as a result of the acquisition.

One of the dubious or invalid reason for acquisition would be the benefit of diversification. It is assumed that due to low correlation between two firms when they merge together, there will be huge benefit of diversification as combined cash flows becomes less volatile.

This is not a valid reason for acquisition. Investors can easily diversify their portfolio by holding stocks of both the firms. Thus diversification cannot be stated legitimate synergies for acquisition.

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