Two Firms Merge and No Synergies Occur

question 12

Multiple Choice

Two firms merge and no synergies occur. Which of the following statements best describes the result?

• A) The reduction in risk in the combined firm benefits the bondholders at the expenses of the shareholders.
• B) The value of the debt in the combined firm will likely be greater than the value of the debt in the two separate firms.
• C) The size of the gain to the bondholders depends on the specific reductions in bankruptcy probabilities after the merger.
• D) All of the above.

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Definitions:

Semantics

The branch of linguistics and logic concerned with meaning, including the ways meaning is constructed in languages and interpreted by speakers and listeners.

Traditional Authority

The norm in tribal and feudal societies, involves rulers inheriting authority through family or clan ties. The right of a family or clan to monopolize leadership is widely believed to derive from the will of a god.

Tribal Societies

Societies organized primarily on kinship and lineage with social, economic, and political structures governed by traditions and customs.

Feudal Societies

Societies characterized by a hierarchical system of governance based on land ownership and service, prevalent in medieval Europe.