Assume a Merger of Two Levered Firms Produced No Synergy

question 64

Multiple Choice

Assume a merger of two levered firms produced no synergy.In this case,the:

• A)acquiring firm's shareholders would neither gain nor lose any value.
• B)bondholders would probably benefit at shareholders' expense.
• C)diversification effect would only benefit the acquired firm's shareholders.
• D)combined shareholders would benefit at the expense of all debt holders.
• E)shareholders and bondholders would fail to realize any benefits or losses.

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Definitions:

Consumer Price Index

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to estimate inflation.

Annual Inflation Rate

The percentage increase in the price level of goods and services in an economy over a year.

Overestimating

The act of assessing something more highly than its actual value or performance, often leading to errors in judgment or planning.

Structurally Unemployed

Describes individuals who are unemployed due to a mismatch between their skills and the jobs available, often because of technological change or fundamental shifts in an economy.