Each of the Following Is True About the Acquisition Search

question 124

Multiple Choice

Each of the following is true about the acquisition search process except for

• A) A candidate search should start with identifying the primary selection criteria.
• B) The number of selection criteria should be as lengthy as possible.
• C) At a minimum, the primary criteria should include the industry and desired size of transaction.
• D) The size of the transaction may be defined in terms of the maximum purchase price the acquirer is willing to pay.
• E) A search strategy entails the use of electronic databases, trade publications, and querying the acquirer's law, banking, and accounting firms for qualified candidates.

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Definitions:

Financial Leverage

The use of borrowed funds to increase a company's investment potential, which can amplify both potential returns and potential losses.

Operating Leverage

Operating leverage refers to the degree to which a company or project can increase operating income by increasing revenue.

Total Leverage

The combination of operating leverage (affecting operating income) and financial leverage (affecting net income), indicating total risk.

Financial Leverage

The use of borrowed funds to finance the acquisition of assets, with the expectation that the profits made will be greater than the interest payable.