Which of the Following Reasons Is Least Likely to Explain

question 52

Multiple Choice

Which of the following reasons is least likely to explain takeover activity?

• A)Target companies are undervalued.
• B)The presence of economies of scale in servicing shareholders.
• C)Increased market power resulting from takeovers.
• D)There are tax benefits.

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Definitions:

External Financing Needs (EFN)

The amount of funding a business requires from external sources to finance its planned growth or expansion activities.

Negative EFN

External Financing Needed; a scenario where a negative value indicates a surplus of funds, implying no external financing is required for growth or operations.

Retention Ratio

The proportion of net income that is retained in the business rather than paid out as dividends, indicating reinvestment rate.

Plowback Ratio

A measure of how much earnings are retained by a company after dividends are paid, as opposed to being paid out to shareholders.