According to the Free-Cash-Flow Theory of Takeovers, Post-Merger Gains in Market

question 86

Multiple Choice

According to the free-cash-flow theory of takeovers, post-merger gains in market value represent:

• A)An illogical assessment of earnings prospects
• B)The remaining costs of the merger
• C)The present value of free-cash-flow that will no longer be misused
• D)Losses experienced by arbitrageurs and other speculators

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Definitions:

Cash Break-Even

It refers to the point at which a business generates just enough revenue to cover its operating expenses, indicating no profit or loss.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company’s operating income to its sales, indicating how a change in sales volume will impact operating income.

Forecasting Risk

The risk that a forecast may prove to be incorrect, potentially leading to financial losses or missed opportunities in financial markets.

Cost-Cutting Proposal

A plan or suggestion aimed at reducing expenses to improve profitability.