Two Firms Merge and No Synergies Occur

question 11

Multiple Choice

Two firms merge and no synergies occur.Which statement best explains this unlikely result?

• A)The reduction in risk in the combined firm benefits the bondholders at the expense of the shareholders.
• B)The value of the debt in the combined firm will likely be greater than the value of the debt in the two separate firms.
• C)The size of the gain to the bondholders depends on the specific reductions in bankruptcy probabilities after the merger.
• D)The share price of the acquiring or combined company increases substantially.

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Definitions:

Total Payroll

The complete amount of money a business pays to its employees over a specific period, including wages, salaries, bonuses, and deductions.

Rectangular Hyperbola

A curve representing a relationship between two variables wherein the product of the two variables is constant, commonly used in economics to describe certain elasticities.

Price Elasticity

A measure of the responsiveness of the quantity demanded or supplied of a good to a change in its price, indicating how changes in price affect consumption or production.

Slope

In mathematics, the measure of the steepness or angle of a line, defined as the ratio between the rise and the run between two points on the line.