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:

Interest Payment

The payment made by a borrower to a lender for the privilege of borrowing money, usually expressed as a percentage of the principal amount.

Present Value

The current estimated value of future money amounts or cash flow sequences, based on a specified return rate.

Annual Interest Rate

The percentage of the principal that a borrower must pay as interest over the course of one year, affecting the total cost of loans or the yield from investments.

Annuity

A monetary instrument offering regular, fixed payments to someone, commonly employed to generate a revenue flow for retired individuals.