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:

Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity available to run its operations.

Fiscal Year

A twelve-month period used for accounting purposes and financial reporting by businesses, which may not align with the calendar year.

December 31

Commonly used in finance and accounting to signify the end of the fiscal or calendar year.

Unadjusted Trial Balance

A preliminary list of all accounts and their balances used in financial reporting before adjustments are made for accruals and deferrals.