Normally, the Acquiring Firm Pays a Price That Is a Premium

question 66

Multiple Choice

Normally, the acquiring firm pays a price that is a premium above the market price of the acquired firm. This means that the ratio of exchange in market price is

• A) always less than 1.
• B) always greater than 1.
• C) usually negative.
• D) equal to 1.

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Definitions:

Capital Budgeting

The process businesses use to evaluate and select long-term investments such as new machinery, replacement machinery, new plants, new products, and research development projects.

Time Value

The concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity.

Soft Capital Rationing

Internal limitations set by a company's management on the amount of funding allocated for new projects.

Debt Covenants

Agreements between a borrower and lender that stipulate certain conditions the borrower must adhere to, which can pertain to financial ratios, levels of income, or other financial benchmarks.