Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 29, Problem 10CQ
Summary Introduction
To explain: The reasons for finding the puzzle of acquiring firm stockholders seem to benefit little from takeover.
Merger:
Merger is the combination of two entities into one in which shareholders of both the companies merge their resources into new company. Merger is basically the result of merge the two or more companies into one.
Synergy:
Synergy is a state in which two or more companies combined than they can perform better than the sum of their individual efforts in terms of productivity, revenue.
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Students have asked these similar questions
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
what is IPO underpricing? How do asymmetric information model explain this phenomena?Briefly explain
Which of the following is true regarding IPO pricing?
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Underpricing is more popular which hurts the firm
Underpricing is more popular which hurts the investment bank
Overpricing is more popular which hurts the firm
Overpricing is more popular which hurts the investment bank
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- Many firms have devised defenses that make it more difficult or costly for other firms to take them over. How might such defenses affect the firm's agency problems? Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders' interests rather than their own? What would you expect to happen to the share price when management proposes to institute such defenses?arrow_forwardWhich of the following is a disadvantage of share ownership? Select one: a. Shares are liquid (can be converted to cash quickly). b. Information is widely available in the news and financial media. c. Transaction costs are low. d. Valuation is difficult.arrow_forward“Merger may be profitable but are they good for the economy?” Explain your answer towards this statement.arrow_forward
- Which of the following correctly, characterizes the risks in merger arbitrage? O A. The strategy is likely to suffer large losses in market downturns. O B. The strategy is likely to suffer small losses in market downturns.arrow_forwarda) 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?arrow_forwardDiscuss the validity of risk diversification as a motivation for companies engaging in merger and acquisition activity?arrow_forward
- Explain the mechanism of using financial leverage as a takeover defense toolarrow_forwardSuppose you need additional capital to expand,and you sell some stock to outside investors. If youmaintain enough stock to control the company,what type of agency conflict might occur?arrow_forwardAcquirer shareholder returns may be explained by: Multiple Choice cost reductions from operational economies of scale. the over-confidence of acquirer managers in valuaing targets. agency cost reductions because of the takeover financing method of financing cost reductions from operational economies of scope. The benefits that arise from tax losses in the target.arrow_forward
- 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?arrow_forwardWhat are the factors that determine whether the company should use cash acquisition or stock acquisition? Discuss five different defensive tactics that the target company can use to thwart this takeover attempt. 3) What are the possible cash flow benefits from this acquisition?arrow_forwardAt times, companies try to induce voluntary conversion by offering an added incentive—maybe cash, stock warrants, or a more favorable conversion ratio. How is such an inducement accounted for? How is it measured?arrow_forward
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