You Read a Story in the Newspaper Announcing the Proposed

question 43

Multiple Choice

You read a story in the newspaper announcing the proposed merger of Dell Computer and Gateway. The merger is expected to greatly increase Gateway's profitability. If you decide to invest in Gateway stock,you can expect to earn

• A)above average returns since you will share in the higher profits.
• B)above average returns since your stock price will definitely appreciate as higher profits are earned.
• C)below average returns since computer makers have low profit rates.
• D)a normal return since stock prices adjust to reflect expected changes in profitability almost immediately.

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Definitions:

Pretax Financial Income

Income of a company calculated before taxes are deducted, often compared to taxable income for tax planning.

Deferred Tax Asset

A tax benefit that arises from temporary differences between the tax and accounting treatment of assets and liabilities, to be utilized in future periods.

Income Taxes Payable

This account reflects the amount of income taxes a company owes to the government but has not yet paid, representing a liability on the balance sheet.

Income Tax Expense

The cost incurred by businesses or individuals due to earnings, calculated according to government tax rates and laws.