The Fact That Acquisitions Impose Substantial Costs on Acquiring Firms

question 6

Multiple Choice

The fact that acquisitions impose substantial costs on acquiring firms (including both the acquisition premium and legal and advisory fees) implies that:

• A)Acquirers need to be sure that potential of the acquisition to create value exceeds the costs of incurred by the acquisition
• B)Acquisitions tend to be in the interests of managers but contrary to the interests of shareholders
• C)Small acquisitions to be preferred to large acquisitions
• D)Boards of directors should be more active in opposing acquisition proposals.

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Definitions:

Cost Of Goods Sold

Expenses directly associated with the creation of a company's sold products, including both materials and workforce costs.

Sales

Sales represent the total revenue earned from goods or services sold by a company during a certain period.

Gross Profit Margin

A financial ratio that indicates the percentage of revenue that exceeds the cost of goods sold, highlighting the efficiency in producing and selling products.

Gross Profit Amount

The difference between sales revenue and the cost of goods sold before accounting for other expenses, indicating how efficiently a company uses labor and supplies in production.