Which of the Following Statements Is Most CORRECT

question 12

Multiple Choice

Which of the following statements is most CORRECT?

• A) A defensive merger is one where the firm's managers decide to merge with another firm to avoid or lessen the possibility of being acquired through a hostile takeover.
• B) Acquiring firms send a signal that their stock is undervalued if they choose to use stock to pay for the acquisition.
• C) Cash payments are used in takeovers but never in mergers.
• D) Managers often are fired in takeovers, but never in mergers.
• E) If a company that produces military equipment merges with a company that manages a chain of motels, this is an example of a horizontal merger.

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Definitions:

Stock Repurchase

A financial transaction in which a company buys back its own shares from the marketplace, reducing the amount of outstanding stock.

P/E Ratio

The price-to-earnings ratio, a valuation metric for stocks calculated by dividing the market value per share by its earnings per share.

EPS

Earnings Per Share, a measure of a company's profitability that is calculated by dividing its net income by the number of outstanding shares.

Stock Repurchase

The process of a corporation repurchasing its own stocks from the market to potentially boost the value of the remaining stocks.