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

question 78

Multiple Choice

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

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

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Definitions:

Operating Cycle

The duration between the purchase of inventory by a business and the receipt of cash from accounts receivable, indicating the speed at which a company turns inventory into cash.

Equity Multiplier

A financial ratio that measures a company's leverage by comparing its total assets to its total equity.

Year 2

The second year in a specified timeframe, often used in financial and performance analysis.

Average Collection Period

A financial metric indicating the average number of days it takes for a company to receive payments owed by its customers.