Which of the following statements is true?
A)When a firm's assets are acquired, the liabilities are transferred to the vendor.
B)The purchase of a target company's shares as a method of acquiring a firm's assets is attractive when the target company has contingent liabilities outstanding.
C)With an acquisition, both assets and liabilities are taken over by the new parent.
D)The purchase of shares must take place soon after the announcement of the intent to merge, thereby minimizing the premium over current market price that has to be paid.

Question

Quizplus · Accepted Answer

In an acquisition, both assets and liabilities are taken over by the new parent. Option A is incorrect because liabilities are not transferred to the vendor, but are assumed by the buyer. Option B is incorrect because the purchase of shares does not necessarily depend on whether the target company has contingent liabilities outstanding. Option D is incorrect because the purchase of shares can take place before or after the announcement of the intent to merge and the premium paid over current market price will depend on various factors such as the attractiveness of the target company and its current market value.

Which of the Following Statements Is True