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Suppose you work for a publicly-traded commercial bank (e.g. Wells Fargo, Bank of America, etc.). You are at a meeting and you hear the CEO
Suppose you work for a publicly-traded commercial bank (e.g. Wells Fargo, Bank of America, etc.). You are at a meeting and you hear the CEO of your company state: "I believe that our bank should acquire a company in the tax preparation industry (e.g. H&R Block, Intuit). While the banking sector can be quite volatile, the tax preparation industry is fairly stable year-to-year. As we know from basic financial theory, diversifying across different industries can help reduce risk. Thus, the ability to use cash flows from the tax preparation segment to offset any losses from our banking business will help add value to our shareholders." Briefly assess your CEO's claim. Do you believe the purchase of the tax preparation business will be a value-enhancing acquisition for your bank? Explain
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