When evaluating an acquisition you should:
A) Concentrate on book values and ignore market values.
B) Focus on the total cash ﬂows of the merged ﬁrm.
C) Apply the rate of return that is relevant to the incremental cash ﬂows.
D) Ignore any one-time acquisition fees or transaction costs.
E) Ignore any potential changes in management.

Question

Quizplus · Accepted Answer

When evaluating an acquisition, it is important to focus on the incremental cash flows of the merged firm and use the appropriate rate of return to assess the potential returns on investment. Book values may not accurately reflect the true value of assets and liabilities, and market values can be volatile and subject to market fluctuations. It is also important to take into account any one-time acquisition fees or transaction costs that may impact the financial outcomes of the deal. Additionally, changes in management can have a significant impact on the success of the acquisition and should not be ignored. However, out of the options given, C is the most essential in evaluating an acquisition.

When Evaluating an Acquisition You Should