The Cost of a Merger May Outweigh the Potential Gain

question 39

Multiple Choice

The cost of a merger may outweigh the potential gain if the:

• A) present value of the acquired firm exceeds the price paid for it.
• B) present value of the merged firms is greater than the sum of their individual values.
• C) merger allows cost savings to occur.
• D) acquired firm's shareholders receive more than the value of their firm.

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Definitions:

Profit

The profit achieved when the income from business operations surpasses all associated expenses, costs, and taxes.

MC < MR

A condition in which the marginal cost of producing an additional item is less than the marginal revenue earned from selling it, suggesting that increasing production is profitable.

Profit

The financial gain obtained when the revenue from business activities exceeds the expenses, costs, and taxes.

License Fee

A charge paid for permission to use intellectual property, enter a market, or perform certain activities within a regulatory framework.