Why Might Shareholders of an Acquiring Firm Prefer to Finance

question 16

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) The EPS decreases 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:

Vascular Reaction

The body’s response involving blood vessels, which can include changes in size, permeability, or blood flow, often in reaction to injury or inflammation.

Wound Blanching

A phenomenon where pressure applied to an area of skin turns it white, indicating good blood flow or the effectiveness of a dressing in wound care.

Foley Catheter

A flexible tube inserted into the bladder to provide continuous urinary drainage.

Home-Acquired Pressure Ulcer

Sores or lesions that develop on the skin, typically caused by prolonged pressure, and occur outside of a healthcare setting.