Firms Do Not Usually Get Rewarded by Diversifying Investments in Different

Multiple Choice

Firms do not usually get rewarded by diversifying investments in different lines of business because ________.

A) the capital markets are efficient and they quickly respond to change in economic conditions
B) cash flows from such projects tend to respond less to changing economic conditions
C) investors themselves can diversify by holding securities in a variety of firms; they do not need the firm to do it for them
D) it is not possible for a firm to diversify its risk as the inflation premium is different for different projects