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:

CDOs

Abbreviation for Collateralized Debt Obligations, a type of structured asset-backed security with multiple tranches.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership such as options.

Negative Amortization

A situation in a loan where the monthly payments are not enough to cover the interest costs, causing the loan balance to increase rather than decrease over time.

Commission

A service fee charged by a broker or agent for facilitating transactions, such as in stocks or real estate.