If an Acquisition Does Not Create Value and the Market

question 24

Multiple Choice

If an acquisition does not create value and the market is smart, then the:

• A) earnings per share of the acquiring firm must be the same both before and after the acquisition.
• B) earnings per share can change but the stock price of the acquiring firm should remain constant.
• C) price per share of the acquiring firm should increase because of the growth of the firm.
• D) earnings per share will most likely increase while the price-earnings ratio remains constant.
• E) price-earnings ratio should remain constant regardless of any changes in the earnings per share.

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Definitions:

Marginal Revenue Product Schedule

A schedule or curve that shows the additional revenue produced by one more unit of an input, such as labor or capital.

Marginal Physical Product

The addition to total output due to the employment of one more unit of a factor, other factors held constant.

Marginal Output

The additional quantity of output that is produced as a result of using one more unit of a particular input, assuming all other factors of production remain constant.

Marginal Physical Product

The change in output resulting from employing one more unit of a particular input, all else being constant.