Why Might Shareholders of an Acquiring Firm Prefer to Finance

question 16

Multiple Choice

Why might shareholders of an acquiring firm prefer to finance mergers with stock rather than with cash?

• A) Stock financing is always less costly due to tax consequences.
• B) The EPS decreases when mergers are financed with cash.
• C) Target-firm shareholders will bear part of the cost if merger benefits were overestimated.
• D) All merger gains go to the acquirer when financed with stock.

---

Definitions:

Psychological Functioning

Refers to the composite of mental processes involved in perception, memory, judgment, and reasoning, as well as emotional, personality, and interpersonal relationships.

Schema

A cognitive framework or concept that organizes and interprets information in the brain, helping to understand and respond to the environment.

General Framework

A broad structure or set of guidelines designed to outline approaches or methods within a particular field or for a specific process.

Piaget

A Swiss developmental psychologist and philosopher known for his pioneering work on children's cognitive development, Jean Piaget proposed stages of development that children progress through as they mature.