The Common Stock of Securetech Corporation Consistently Sells at a Market

question 81

Multiple Choice

The common stock of Securetech Corporation consistently sells at a market price of 20 times earnings .What would be the most likely effect of a 10-cent increase in Securetech's basic EPS?

• A)An increase in market price of approximately 10 cents per share.
• B)An increase in market price of approximately $2 per share.
• C)A reduction in the P/E ratio due to the larger EPS.
• D)Nothing,since market price reflects expectations of future earnings.

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Definitions:

Defensive Tactic

Strategies employed by companies to prevent or deter unwanted takeover bids or corporate raiders.

Flip-Over Provision

This provision is a defensive strategy used by companies in their shareholder rights plans to deter hostile takeovers, allowing shareholders to buy shares of the acquirer at a discount after the takeover.

White Knight

A friendly investor or company that acquires a corporation at fair consideration, often to prevent a hostile takeover.

Unfriendly Suitor

A company or individual that makes a takeover attempt on another company without the consent or cooperation of the target company’s management.