What Happens to the Outstanding Shares of the Target Firm

question 28

Multiple Choice

What happens to the outstanding shares of the target firm when the acquirer purchases 100% of the target's outstanding stock?

• A) They are added to the number of shares of Acquirer stock outstanding
• B) They are cancelled.
• C) They are converted into preferred stock.
• D) They are shown as treasury stock on the books of the combined companies.
• E) They are swapped for debt in the new company.

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Definitions:

General Motors

A global American corporation with its main office in Detroit, specializing in the design, production, marketing, and sales of automobiles and their components.

Sears

An American chain of department stores known for its significant historical impact on retail but has struggled financially in recent years.

Sustainable Growth Rate (SGR)

The growth rate a firm can maintain given its debt capacity, ROE, and retention ratio.

Finance Perspective

An approach or viewpoint focusing on the management, creation, and study of money, banking, credit, investments, assets, and liabilities.