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.

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Definitions:

Trade

The act of buying, selling, or exchanging goods and services between people or entities.

Economic Outcome

The result or consequence of economic activities and policies on an economy's overall condition.

Marginal Rate Of Substitution

The speed at which a consumer is able to forfeit a certain quantity of one product in favor of another product, whilst retaining an equivalent level of satisfaction.

Efficiency

Efficiency in an economic context refers to the optimal production and allocation of resources to maximize the satisfaction of needs and wants with minimal waste.