Which One of the Following Statements Is Correct

question 18

Multiple Choice

Which one of the following statements is correct?

• A) An increase in the earnings per share as a result of an acquisition will increase the price per share of the acquiring firm.
• B) The price-earnings ratio must remain constant as a result of an acquisition that fails to create value.
• C) If firm A acquires firm B then the number of shares in AB will equal the number of shares of A plus the number of shares of B.
• D) The price-earnings ratio can decrease even when the net present value of a merger is equal to zero.
• E) Diversification is one of the greatest benefits derived from an acquisition.

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Definitions:

Normal Balance

the side (debit or credit) on which increases to an account are recorded, based on the type of account (asset, liability, equity, revenue, or expense).

Contra-Asset

An account that offsets or reduces the balance of a related asset account, such as accumulated depreciation.

Allowance for Doubtful Accounts

An estimation recorded on financial statements reflecting the amounts expected to be uncollected from accounts receivable.