The Shareholders of Firm a Have Offered 1 Million Shares

question 116

Multiple Choice

The shareholders of firm A have offered 1 million shares valued at $10 each to acquire firm B. After the merger is announced, stock A trades for $9 per share. Which of the following statements is false?

• A) Firm A appears to have overbid for firm B.
• B) The NPV of the merger may differ from expectations.
• C) Shareholders of firm A absorb all the additional "cost."
• D) Firm A's stockholders are better off than if the merger were cash financed for $10 million.

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Definitions:

At-The-Money

At-The-Money describes an option where the strike price is identical to the current price of the underlying asset.

Put Option

A financial contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.

Stock Price

The cost of purchasing a share of a company, as traded on a stock exchange, which may fluctuate based on supply and demand dynamics.

Exercise Price

The price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.