Which of the following statements is most CORRECT?Oa. Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification,including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what's probablya lower cost, diversification benefits is generally not a valid motive for a publicly held firm.Ob. The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations,and the higher the probability that the merger will be completed.Oc. Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarelyrelevant considerations when considering a merger.Od. Operating economies are never a motive for mergers.Oe. Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes thepurchasing firm to additional taxes. Thus, firms with excess cash rarely undertake mergers.

When managers buy other companies, they frequently claim that the merged company will benefit from…

Answered: Which of the following statements is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter23: Corporate Restructuring

Section: Chapter Questions

Problem 7QTD

See similar textbooks

Similar questions

a) What is a conglomerate merger and why are they more likely to be approved? b) Limit pricing is a strategy where a firm sets a low, but profitable, price to discourage entry. How does that differ from predatory pricing? c) What is "Share the gain, share the pain" theory?
Why might one company have to complete more due diligence than another in a merger? A. None of these answers B. It is important for a company to know what it is buying C. Acquisitions can be risky D. If there is a large size discrepancy the merger seems more like an aquis
Which of the following statements is most CORRECT? Oa. The primary rationale for most operating mergers is synergy. Ob. In most mergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then divided equally between the shareholders of the acquiring and target firms. Oc. Financial theory says that the choice of how to pay for a merger is really irrelevant because, although it may affect the firm's capital structure, it will not affect its overall required rate of return. Od. The basic rationale for any financial merger is synergy and, thus, the estimation of pro forma cash flows is the single most important part of the analysis. Oe. The acquiring firm's required rate of return in most horizontal mergers will not be affected, because the 2 firms will have similar betas.
The cost of a merger may outweigh the potential gain if the: present value of the acquired firm exceeds the price paid for it. acquired firm's shareholders receive more than the value of their firm. present value of the merged firms is greater than the sum of their individual values. merger allows cost savings to occur.
The following are sensible motives for mergers EXCEPT: a. Economies of scope b. Reducing firm risk through diversification c. Reducing competition d. Eliminating inefficiencies e. All of the above
Which of the following LEAST accurately describes the advantages of specific types of mergers and acquisitions?a. The catch-all term for the benefits from M&As is synergy.b. A diversified group of business may further acquire other businesses in a conglomerate type of acquisition.c. The acquisition of an entity outside the industry and supporting services will result to decrease in cost of production of the acquirer.d. Financial advantages of M&A include decreased operating costs, increased financial capacity, and combined sales.
It is quite often we observe some firms takeover target firms from a different industry. If diversifying harms firm value and it is more efficient to make diversification at the investor (shareholder) level than at the firm level, why do you think the managements still choose to make diversified acquisitions?
Which is not a valid, acceptable reason for companies to merge? Synergistic benefits arising from mergers. Reduction in competition resulting from mergers. Acquisition of assets at below replacement value. Attempts to minimize taxes by acquiring a firm with large accumulated losses that can be used immediately. Using surplus cash to acquire another firm and prevent unfavorable tax consequences for shareholders.
Diversification is considered a dubious reason for merger because:Select one: a. Risk reduction is achieved by more by bondholders than stockholders b. Personal diversification is possible by the shareholders themselves c. Diversification only minimizes unsystematic risk d. All of the above
If a firm wishes to achieve immediate appreciation in earnings per share as a result of a merger, how can this be best accomplished in terms of exchange variables? What is a possible drawback to this approach in terms of long-range considerations?
Hello, could you please answer the following question in details. Thank you very much! Are the following statements true or false? Justify your answer. Mergers inspired by vertical integration motives are very rare nowadays, as transaction costs have decreased substantially since the second merger wave. “It is always advisable for a company to diversify its activities, in order to limit the risk of being too exposed to one activity”
If you are planning an acquisition that is motivated by trying to acquire expertise, you are basically seeking to gain intellectual capital. What concerns would you have in structuring the deal and the post-merger integration that would be different from the concerns you would have when buying physical capital?

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS