When a diversified firm concentrates on its core businesses, the market typically values its stock higher. What could one infer from this?
A)Stockholders should sell their stocks
B)Diversified firms cannot be profitable
C)The market believes that those parts of the diversified firm sold off were being managed so badly they were reducing long term profit prospects
D)Growing economic turbulence has increased the cost of managing diversified firms

Question

Quizplus · Accepted Answer

The market's valuation suggests that the parts of the diversified firm sold off were not contributing much to the firm's overall value, and were being managed poorly, thus reducing the firm's long term profit prospects. This implies that focusing on the core businesses can improve the firm's profitability and increase its stock value. The other options are not supported by the information provided in the statement.

When a Diversified Firm Concentrates on Its Core Businesses, the Market