When the Ratio of Exchange in a Merger Is Equal

question 66

Multiple Choice

When the ratio of exchange in a merger is equal to one and both the acquiring and the target companies have the same premerger earnings per share, the merged firm's earnings per share will initially

• A) remain constant.
• B) increase.
• C) drop to zero.
• D) decline.

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Definitions:

Utility Function

A mathematical representation of a consumer's preference ordering over a set of goods or outcomes, showing the level of satisfaction or utility derived from each.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute cheaper goods for more expensive ones.

Price

The amount of money expected, required, or given in payment for something, reflecting the value that consumers and sellers assign to a good or service.

Apples

A fruit cultivated worldwide, also used metaphorically in economics and finance to represent commodities or assets for comparative analysis.