One Potential Advantage of a Merger to the Acquiring Firm

question 36

True/False

One potential advantage of a merger to the acquiring firm is the "portfolio effect," which attempts to achieve risk reduction while perhaps maintaining the rate of return for the firm.

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Definitions:

Unit Contribution Margin

The amount each unit sold contributes to covering fixed costs and generating profit, calculated by subtracting variable costs per unit from the selling price per unit.

Break-Even Point

The financial point at which total revenues equal total costs and expenses, resulting in no net loss or gain.

Fixed Costs

Costs that do not change with the level of production or sales activities, such as rent, salaries, and insurance.

Operating Leverage

A measure of how sensitive a company's operating income is to changes in revenue, indicating the degree to which fixed costs are utilized.