If Two Merged Firms Are Shown to Have a Higher

question 12

Multiple Choice

If two merged firms are shown to have a higher combined market value than the sum of the individual market values,then:

• A) economic gains are said to have taken place.
• B) the firms were previously underpriced.
• C) the merger provides diversification to investors.
• D) there is no cost involved in the merger.

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Definitions:

Costs Of Underpricing

Financial losses incurred when a product or service is sold for less than its market value or cost of production, often used as a strategy to enter new markets or increase market share.

Costs Of Overpricing

Consequences of setting a sale price too high, leading to reduced sales volume, customer dissatisfaction, and competitive disadvantages.

Demand

The level of demand for goods or services that individuals are eager and able to fulfill at various pricing tiers throughout a specific duration.

Inter-product Cannibalization

Occurs when a company's new product eats into the sales of one of its older products, potentially reducing overall sales and profits.