Which of the Following Statements Best Describes Mergers

question 48

Multiple Choice

Which of the following statements best describes mergers?

• A) The acquiring firm's required rate of return in most horizontal mergers will not be affected, because the two firms will have similar betas.
• B) Financial theory says that the choice of how to pay for a merger is 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 consolidation is financial synergy and, thus, the estimation of pro forma cash flows is the single most important part of the analysis.
• D) The primary rationale for most operating mergers is synergy.

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Definitions:

Financial Transaction

A financial transaction refers to an agreement, or communication between a buyer and seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.

Unearned Revenue

Income received by an entity for services yet to be rendered or goods yet to be delivered; also known as deferred revenue.

Liability

Any type of financial debt or obligation that a company or individual owes to another party.

Products Or Services

The outcomes of a business process or activity, which include tangible goods and intangible deliveries provided to meet customer needs.