When Evaluating an Acquisition You Should

question 198

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.

Identify the differences between standard and AMT (Alternative Minimum Tax) adjustments and deductions.

Comprehend the at-risk rules and how they impact the deductibility of losses.

Recognize the tax implications of depreciation adjustments for both regular tax purposes and AMT.

Appreciate the concept of tax preference items and their effect on AMT.

---

Definitions:

Variable Costs

Costs that vary directly with the level of production or output.

Cost-Volume Analysis

A managerial accounting technique used to analyze how various levels of sales and production will affect profit.

Low-Cost Choice

An option that requires minimal financial outlay compared to other alternatives.