When Firm a Acquired Firm B, No Incremental Value Was

question 134

Multiple Choice

When Firm A acquired Firm B, no incremental value was created but earnings per share increased. If the financial markets are astute, the price-earnings ratio of Firm A should ____ and the stock
Price of Firm A should _____.

• A) decrease; decrease
• B) decrease; increase
• C) decrease; remain constant
• D) increase; decrease
• E) increase; increase

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Definitions:

Unemployment

The situation when individuals who are able and willing to work at current wage rates cannot find employment.

Inflation Expectations

The rate at which people expect the general price level of goods and services to rise in the future.

Housing and Financial Crisis

A period marked by severe disruptions in the availability of credit, widespread foreclosures, and plummeting housing prices, typically leading to a long-term economic downturn.

World Prices

The prices of goods and services as determined on the global market, influenced by global supply and demand.