Which of the Following Statements Is Most CORRECT

question 9

Multiple Choice

Which of the following statements is most CORRECT?

• A) The acquiring firm's required rate of return in most horizontal mergers will not be affected, because the 2 firms will have similar betas.
• B) Financial theory says that the choice of how to pay for a merger is really irrelevant because, although it may affect the firm's capital structure, it will not affect its overall required rate of return.
• C) The basic rationale for any financial merger is synergy and, thus, the estimation of proforma cash flows is the single most important part of the analysis.
• D) In most mergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then divided equally between the shareholders of the acquiring and target firms.
• E) The primary rationale for most operating mergers is synergy.

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Definitions:

Economic Theory

A set of principles and frameworks that aim to explain the processes governing production, distribution, and consumption of goods and services in an economy.

Purchasing Price

The amount of money required to buy a certain quantity of goods or services at a given time.

Incentive

A factor, monetary or otherwise, that motivates individuals or entities to act in a certain way.

Price Index

A statistical measure that tracks changes in the price level of a basket of consumer goods and services over a period of time.