Why Might Shareholders of an Acquiring Firm Prefer to Finance

question 21

Multiple Choice

Why might shareholders of an acquiring firm prefer to finance mergers with stock rather than with cash?

• A) Stock financing is always less costly due to tax consequences.
• B) EPS fall when mergers are financed with cash.
• C) Target-firm shareholders will bear part of the cost if merger benefits were overestimated.
• D) All merger gains go to the acquirer when financed with stock.

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Definitions:

Vomiting

The forceful expulsion of stomach contents through the mouth.

Metabolic Alkalosis

A disturbance in the body's acid-base balance resulting in a higher than normal pH in the blood, often caused by excessive loss of acid or an increase in bicarbonate.

Bulimia

An eating disorder characterized by binge eating followed by purging, through methods such as vomiting or laxative abuse, to prevent weight gain.

Muscle Cramps

Involuntary and often painful contractions of muscles that can occur suddenly and resolve spontaneously.