Which One of the Following Is the Most Appropriate Reason

question 48

Multiple Choice

Which one 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:

Risky Assets

Financial instruments that carry a higher degree of risk compared to risk-free assets, potentially leading to higher returns or losses.

Standard Deviation

Standard deviation is a measure of the dispersion or spread of a set of data points, often used in finance to gauge the volatility of an investment's return over time.

Variance

A statistical measure of the dispersion of returns for a given security or market index, indicating the degree of volatility.

Portfolio Diversification

The practice of investing across different financial assets to reduce risk by spreading exposure.