When Evaluating an Acquisition, You Should

question 58

Multiple Choice

When evaluating an acquisition, you should:

• A)concentrate on book values and ignore market values.
• B)focus on the total cash flows of the merged firm.
• C)apply the rate of return that is relevant to the incremental cash flows.
• D)ignore any one-time acquisition fees or transaction costs.
• E)ignore any potential changes in management.

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Definitions:

Interest-Bearing

Referring to debt securities or loans that accrue interest over time, payable to the holder or lender.

Note Payable

A written promise to pay a specified amount of money, usually with interest, at a designated future date.

Withheld

Refers to a portion of an employee's wages not paid out directly to them but instead held back for purposes such as tax payments.

Social Security

A government program that provides financial assistance to people with insufficient or no income, especially the elderly, disabled, and unemployed.