If the P/E Paid for a Target Company Is Equal

question 4

Multiple Choice

If the P/E paid for a target company is equal to the P/E of the acquiring company, the effect on the earnings per share of the acquired company will be ________.

• A) positive
• B) neutral
• C) negative
• D) uncorrelated

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Definitions:

Moral Hazard

A situation where one party takes risks because they know they will not have to bear the full consequences of their actions.

Divorce Insurance

A type of financial product designed to provide financial protection to individuals in case of a divorce, typically by paying a lump sum.

Marital Problems

Issues or conflicts arising between spouses that can affect the stability and health of the marriage.

Adverse Selection

A situation where asymmetric information results in high-risk individuals being more likely to participate in a contract, often seen in insurance markets.