Does diversification achieved through a merger create value? Why or why not?

- Yes, diversification lowers the volatility of a firm's earnings which, increases the firm's value to shareholders.

- No, diversification lowers unsystematic risk but has no real value to shareholders.

- Yes, diversification increases a firm's earnings which, creates value for the firm.

- No, diversification lowers a firm's earnings and thus destroys value.

- Yes, diversification lowers the total risk of a firm which, provides a compensable benefit.