If an acquisition does not create value and the market is smart, then the:

45.

Which of the following represent potential gains from an acquisition? I. increased use of debt II. lower costs per unit produced III. strategic beachhead IV. diseconomies of scale    A.  II and III only B.  I and IV only C.  I, II, and III only D.  I, III, and IV only E.  I, II, III, and IV Refer to section 26.4

46.

The value of a target firm to the acquiring firm is equal to:    A.  the value of the target firm as a separate entity plus the incremental value derived from the acquisition. B.  the purchase cost of the target firm. C.  the value of the merged firm minus the value of the target firm as a separate entity. D.  the purchase cost plus the incremental value derived from the acquisition. E.  the incremental value derived from the acquisition. Refer to section 26.4

47.

If an acquisition does not create value and the market is smart, then the:    A.  earnings per share of the acquiring firm must be the same both before and after the acquisition. B.  earnings per share can change but the stock price of the acquiring firm should remain constant. C.  price per share of the acquiring firm should increase because of the growth of the firm. D.  earnings per share will most likely increase while the price-earnings ratio remains constant. E.  price-earnings ratio should remain constant regardless of any changes in the earnings per share. Refer to section 26.5

48.

An acquisition completed simply to diversify a firm will:    A.  create excessive synergy in almost all situations. B.  lower systematic risk and increase the value of the firm. C.  benefit the firm by eliminating unsystematic risk. D.  benefit the shareholders by providing otherwise unobtainable diversification. E.  generally not add any value to the firm. Refer to section 26.5

49.

Which one of the following statements is correct?    A.  An increase in the earnings per share as a result of an acquisition will increase the price per share of the acquiring firm. B.  The price-earnings ratio will remain constant as a result of an acquisition which fails to create value. C.  If firm A acquires firm B then the number of shares in AB will equal the number of shares of A plus the number of shares of B. D.  If no value is created when firm A acquires firm B, then the total value of AB will equal the value of A plus the value of B. E.  Diversification is one of the greatest benefits derived from an acquisition. Refer to section 26.5