When Evaluating an Acquisition You Should

question 78

Multiple Choice

When evaluating an acquisition you should:

• A)concentrate on book values and ignore market values.
• B)focus on the total cash flows of the merged firm.
• C)apply the rate of return that is relevant to the incremental cash flows.
• D)ignore any one-time acquisition fees or transaction costs.
• E)ignore any potential changes in management.

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Definitions:

Demand Curve

A graph showing the quantity of a good that consumers are willing to buy at different prices, typically downward sloping.

Wage Rate

The compensation paid to employees for their labor, typically expressed as an amount per hour, day, or unit of work.

Production Function

A mathematical model that describes the relationship between input factors (like labor and capital) and the output of goods or services.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing to purchase at each price level.