Which of the Following Statements Regarding 'Poison Pills' Is FALSE

question 2

Multiple Choice

Which of the following statements regarding 'poison pills' is FALSE?

• A)Poison pills also increase the bargaining power of the target firm when negotiating with the acquirer because poison pills make it difficult to complete the takeover without the cooperation of the target board.
• B)Companies with poison pills are harder to take over, and when they are taken over, the premium that existing shareholders receive for their shares is higher.
• C)Because a poison pill increases the cost of a takeover, all else equal, a target company must be in better shape to justify the expense of waging a takeover battle.
• D)By adopting a poison pill, a company effectively entrenches its management by making it much more difficult for shareholders to replace bad managers, thereby potentially destroying value.

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Definitions:

Marginal Revenue Curve

A graph illustrating the additional revenue a firm gains when it sells one additional unit of a product.

Perfect Competition

Perfect competition describes a market structure where competition is at its greatest possible level, with numerous firms, no barriers to entry, and price taking behavior.

MR < MC

A scenario where marginal revenue is less than marginal cost, suggesting it is not profitable to produce additional units.

Marginal Cost

A measurement of the cost incurred by producing one additional unit of a product or service.