Which of the Following Are Required for an Acquisition to Be

question 47

Multiple Choice

Which of the following are required for an acquisition to be considered tax-free?
I.continuity of equity interest
II.a business purpose,other than avoiding taxes,for the acquisition
III.payment in the form of equity shares for the acquired firm
IV.cash payment for the equity of the acquired firm

• A)I and II only
• B)II and III only
• C)II and IV only
• D)I, II, and III only
• E)I, II, and IV only

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Definitions:

Unique Risk

Risk that affects a very limited number of assets, often referred to as "unsystematic risk" or "idiosyncratic risk."

Diversifiable Risk

The portion of an investment's risk that can be mitigated or eliminated through portfolio diversification.

Correlation Coefficient

A statistical measure that calculates the strength and direction of a linear relationship between two variables.

Covariance

A measure of how two variables move in relation to each other, used in finance to diversify portfolios and minimize risk.