Question

Large diversified businesses often face what is known as the "conglomerate discount." This discount means that investors

a. understand that the financial efficiencies of this strategy automatically make these stocks worth more than their current market valuation.
b. believe that the value of conglomerates is less than the value of the sum of their parts.
c. increase the expected future earnings of conglomerates.
d. have found that over time, conglomerates earn more than the component companies would have earned independently.

Answer 1

The conglomerate discount means that investors believe that the value of conglomerates is less than the value of the sum of their parts.

Step-by-step explanation:

The conglomerate discount refers to the belief that the value of conglomerates is less than the value of the sum of their parts. Large diversified businesses face this discount because investors consider the financial efficiencies of the conglomerate strategy and believe that the conglomerate's value is lower than what it would be if its component companies were valued independently.