'It Is Unlikely That Undervaluation of Targets Is the Main

question 35

Multiple Choice

'It is unlikely that undervaluation of targets is the main reason for takeover activity.' This statement is:

• A)false,since markets have been proven to be inefficient.
• B)true,since management of the bidding company may have private information.
• C)false,since management of the bidding company may recognise the existence of alternative,better uses for assets of the target.
• D)true,since market efficiency implies that such opportunities are rarely found.

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Definitions:

$100,000 Bond

A debt instrument issued by a corporation or government entity, with a principal amount of $100,000, to raise funds from investors.

Premium

An amount paid in addition to a standard price or rate, or the amount above par value for a security.

Bond Interest Expense

The cost incurred by an issuer of bonds for the interest payments made to bondholders over a period.

Amortization

The process of spreading out a loan into a series of fixed payments over time or the gradual writing off of the initial cost of an intangible asset.