Which of the Following Statements Is Most CORRECT

question 26

Multiple Choice

Which of the following statements is most CORRECT?

• A) The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations, and the higher the probability that the merger will be completed.
• B) Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger.
• C) Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings.However, since shareholders are free to diversify their own holdings, and at what's probably a lower cost, diversification benefits is generally not a valid motive for a publicly held firm.
• D) Operating economies are never a motive for mergers.
• E) Tax considerations often play a part in mergers.If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes.Thus, firms with excess cash rarely undertake mergers.

---

Definitions:

Comprehensive Income

The total change in equity for a reporting period other than from transactions with owners.

Operating Cash Flows

The cash generated from the primary revenue-producing activities of a business, indicating its health and ability to generate funds internally.

Pro Forma Statements

Financial statements prepared to show the effects of future events or transactions, typically used in projections.

Bottom-Up Approach

An investment analysis approach focusing on individual stocks or companies, as opposed to the broader market conditions or economic trends.