Which of the Following Statements Is Most CORRECT

question 17

Multiple Choice

Which of the following statements is most CORRECT?

• A) Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes. Thus, firms with excess cash rarely undertake mergers.
• B) The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations, and the higher the probability that the merger will be completed.
• C) Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger.
• D) Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what's probably a lower cost, diversification benefits is generally not a valid motive for a publicly held firm.
• E) All of the answers above are correct.

---

Definitions:

Bounded Rationality

The concept that decision-making is limited by the information available, cognitive limitations of the mind, and the time available to make the decision.

Mental Shortcuts

Cognitive strategies or heuristics that the mind uses to make decisions or judgments quickly.

Representativeness Heuristic

A cognitive shortcut that involves making judgments based on how well something matches with stereotypes or prototypes in one's mind.

Cognitive Development

The process of growth and change in intellectual/mental abilities such as thinking, reasoning, and understanding, across the lifespan, influenced by genetics and environmental factors.