One of the Effects of a Merger That Can Easily

question 154

Multiple Choice

One of the effects of a merger that can easily mislead investors into overvaluing a firm is the:

• A) Appearance of earnings per share growth when no such growth exists.
• B) Change in the number of shares outstanding in an all cash merger.
• C) Increase in total assets as a result of goodwill recognition under the pooling of interest accounting system.
• D) Change in the total value of a firm under the pooling of interest accounting system.
• E) Increase in cash flows due to the additional leverage required to fund the acquisition.

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Definitions:

Rate of Return

The Rate of Return (RoR) is a financial metric used to measure the profitability of an investment, representing the percentage of profit or loss relative to the investment's original cost.

Variable Direct Materials Cost

Refers to the fluctuating cost of raw materials that directly goes into producing a product, changing as the volume of production varies.

Contribution Margin

The amount by which the sale of a product exceeds its variable costs, contributing to covering fixed costs and generating profit.

Activity Rate

The estimated activity cost divided by estimated activity-base usage.