The Herfindahl-Hirschman Index Is One Factor Used to Determine Whether

question 195

Multiple Choice

The Herfindahl-Hirschman Index is one factor used to determine whether a merger between two firms should be allowed.Which of the following statements regarding the value of the Index for a given industry is true?

• A)If a merger would result in an Index value less than 1,500, the merger would not be challenged.
• B)If a merger would result in an Index value of 1,500 or more, the industry would be considered a monopoly and the merger would be challenged.
• C)If a merger resulted in an Index of between 1,500 and 2,500, and the HHI increased by more than 100 points, the industry would be considered competitive and the merger would not be challenged.
• D)If a merger would increase the Index by 100, the industry would be considered a monopoly and the merger would be challenged.

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Definitions:

Debt-Equity Ratio

A financial ratio used to understand a company's leverage, by dividing its complete liabilities by the equity available to shareholders.

Price-Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, used to gauge the relative value of a stock.

Earnings Per Share

A profitability measure that indicates the portion of a company's profit allocated to each outstanding share of common stock, calculated as net income minus dividends on preferred stock divided by the average outstanding shares.

Earnings Before Taxes

A company's profit before taxation is deducted.