Acquisition: An acquisition can be defined as a corporate activity wherein a firm purchases most, even though not all, of the shares of a firm so as to assume control over it. An acquisition takes place when the acquirer acquires more than fifty percent ownership in the target firm. The acquirer normally busy the stocks and other assets of the target firm, thereby allowing the acquirer to take decisions related to the newly acquired assets without the consent of the shareholders of the target firm. Diversification: Diversification can be defined as a technique used to manage risks by mixing a group of different investments in a particular portfolio. Its chief objective is to yield higher returns generate lower risks as compared to individual investments in the portfolio. To determine: The reason why managers must not acquire firms in different industries to diversify a company.

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Chapter 22, Problem 8CT

Summary Introduction

Acquisition:

An acquisition can be defined as a corporate activity wherein a firm purchases most, even though not all, of the shares of a firm so as to assume control over it. An acquisition takes place when the acquirer acquires more than fifty percent ownership in the target firm.

The acquirer normally busy the stocks and other assets of the target firm, thereby allowing the acquirer to take decisions related to the newly acquired assets without the consent of the shareholders of the target firm.

Diversification:

Diversification can be defined as a technique used to manage risks by mixing a group of different investments in a particular portfolio. Its chief objective is to yield higher returns generate lower risks as compared to individual investments in the portfolio.

To determine:

The reason why managers must not acquire firms in different industries to diversify a company.

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