If an Acquisition Does Not Create Value and the Market

question 24

Multiple Choice

If an acquisition does not create value and the market is smart, then the:

• A) earnings per share of the acquiring firm must be the same both before and after the acquisition.
• B) earnings per share can change but the stock price of the acquiring firm should remain constant.
• C) price per share of the acquiring firm should increase because of the growth of the firm.
• D) earnings per share will most likely increase while the price-earnings ratio remains constant.
• E) price-earnings ratio should remain constant regardless of any changes in the earnings per share.

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Definitions:

Fair Values

An alternative phrasing for fair value, indicating the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Credit Balance

A situation where the amount of credits in an account exceeds the debits, often indicating the amount owed to the account holder.

Consolidated Expenses

Consolidated expenses refer to the aggregation of all expenses from every division or subsidiary of a corporation into a single expenses figure.

Common Stock

Shares of ownership in a corporation that entitle holders to vote on corporate matters and receive dividends.