The Reasons Why a Firm Would Overpay for a Company

question 22

True/False

The reasons why a firm would overpay for a company that it acquires include inadequate due diligence.

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Definitions:

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with fixed dividends and without voting rights.

Plowing Back

The reinvestment of earnings by a company back into its own operation or projects, also known as retained earnings.

ROE

Return on Equity, a financial ratio that measures the profitability of a business in relation to shareholder’s equity, indicating how well a company uses investments to generate earnings growth.

Dividend Growth Rate

The annualized percentage rate of growth of a company's dividend payments.