Which of the Following Statements Is Most CORRECT

question 25

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,research of U.S.firms suggests that in most cases,diversification through mergers does not increase the firm's value.
• E) Research of U.S.firms suggests that managers' personal motivations have had little,if any,impact on firms' decisions to merge.

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Definitions:

Limited Liability

A legal structure that limits the financial responsibility of individuals (e.g., shareholders of a company) to the amount they have invested.

Corporation's Liabilities

The financial obligations or debts for which a corporation is legally responsible.

Liability Limitation

A clause in a contract that restricts the amount of compensation that can be claimed for breaches of the contract or other liabilities.

Cash Assets

Liquid funds or assets readily convertible into cash without significant loss in value.