In the Event That Active Corp

question 44

Multiple Choice

In the event that Active Corp., which has a low P/E ratio, acquires Basic Corp., which has a higher P/E ratio, we could be assured that one of the following would occur, with everything else being equal. Which one would occur?

• A) Active Corp. will have an immediate increase in EPS.
• B) Active Corp. will have an immediate decrease in EPS.
• C) Active Corp. will have an immediate increase in the growth rate of EPS.
• D) Active Corp. will have an immediate decrease in the P/E ratio.

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Definitions:

Ownership Percentage

Ownership percentage refers to the fraction or percentage of a company that is owned by a particular shareholder or group of shareholders.

Indirect Cost

Costs that are not directly attributable to a specific product, activity, or project, but are necessary for the general operation of the business.

IPO

Stands for Initial Public Offering, which is the process where a private company goes public by selling its shares to the general public for the first time.

Equity IPO

Initial Public Offering (IPO) of equity shares, where a company offers its stocks to the public for the first time.