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:

Functional Currency

The currency of the primary economic environment in which an entity operates and generates cash flows.

Goods Sold

The total quantity or value of products that have been purchased by customers within a given period.

Accounting Exposure

The risk that a company's financial statements can be affected by changes in exchange rates, influencing the reported earnings and financial position.

Apparent Gain

A perceived increase in value or profit that might not reflect the actual financial condition or performance.