Which of the Following Statements Regarding Recapitalization as a Takeover

question 52

Multiple Choice

Which of the following statements regarding recapitalization as a takeover defense is false?

• A) Another defense against a takeover is a recapitalization, in which a company changes its capital structure to make itself less attractive as a target.
• B) Restructuring itself can produce efficiency gains, often removing the principal motivation for the takeover in the first place.
• C) By increasing leverage on its own, the target firm can reap the benefit of the interest tax shields.
• D) In many cases, a substantial portion of the synergy gains that an acquirer anticipates from a takeover are savings from a decrease in leverage as well as other cost reductions.

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Definitions:

Framing

The way information is presented to us which can influence our decisions and judgments.

Functional Fixedness

A cognitive bias that limits a person to using an object only in the way it is traditionally used.

Restructuring

Thinking about a problem in a new way in order to solve it.

Using Analogies

The process of explaining a concept or idea by comparing it with something else that is more familiar or easier to understand.