Entity a and Entity B Agree to Merge

question 7

Multiple Choice

Entity A and Entity B agree to merge.The capital structure of each entity is:
Entity A - 100 ordinary shares
Entity B - 60 ordinary shares
Entity A issues 2.5 shares in exchange for each ordinary share of Entity B.All of Entity B's shareholders exchange their shares for Entity A shares.
Which of the following statement is correct?

• A)Entity A is both the parent and the acquirer in the transaction.
• B)Entity B is both the parent and the acquirer in the transaction.
• C)Entity A is the parent and Entity B is the acquirer in the transaction.
• D)Entity B is the parent and Entity A is the acquirer in the transaction.

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Definitions:

Allocationally Efficient

Refers to a market scenario where resources are distributed in a way that maximizes the benefits to all participants, considering their preferences and needs.

Random Walk

A theory suggesting that stock market prices evolve according to a random path, making it impossible to consistently predict future movements based on past trends.

Stock Price Changes

Variations in the market price of a company’s stock over time.

Book-To-Market Firms

Firms characterized by their high book value relative to market value, often used as an investment metric.