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 must remain constant as a result of an acquisition that 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) The price-earnings ratio can decrease even when the net present value of a merger is equal to zero.
E) Diversification is one of the greatest benefits derived from an acquisition.

Question

Quizplus · Accepted Answer

The price-earnings (P/E) ratio can decrease even if the net present value (NPV) of a merger is zero because the P/E ratio is influenced by market perceptions and earnings growth expectations, not just the immediate financial outcomes of the merger.

Which One of the Following Statements Is Correct