Which of the Following Is the Most Appropriate Reason for an Acquiring

question 110

Multiple Choice

Which of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

• A) There is no cash outflow.
• B) It mitigates the effects of overvaluation of the target firm.
• C) It mitigates the effects of undervaluation of the target firm.
• D) It avoids dilution of shares.

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Definitions:

Contribution Margin Ratio

The percentage of each sale that contributes to covering fixed costs after variable costs have been paid.

Fixed Costs

Costs that do not vary with production level, such as rent, insurance, and salaries of administrative staff.

Variable Costs

Expenses that change directly and proportionally with the level of production or sales volume, such as raw materials and direct labor.

Break-Even Point

The level of sales at which total revenues equal total costs, resulting in zero profit.