When Evaluating an Acquisition You Should

question 78

Multiple Choice

When evaluating an acquisition you should:

• A)concentrate on book values and ignore market values.
• B)focus on the total cash flows of the merged firm.
• C)apply the rate of return that is relevant to the incremental cash flows.
• D)ignore any one-time acquisition fees or transaction costs.
• E)ignore any potential changes in management.

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Definitions:

Equilibrium Price

The market price at which the supply of an item matches its demand, leading to economic stability in the market.

Supply Curve

An illustrative diagram depicting the link between the cost of an item and the volume merchants are ready to provide.

Supply Curve

A graphical representation showing the correlation between the price of a good or service and the amount that suppliers are willing to produce and sell at each price level.

Quantity Demanded

The aggregate quantity of a product or service that buyers are ready and able to buy at a specific price point during a certain timeframe.