Which one of the following statements is correct?
A) Acquiring firms tend to avoid firms with large net operating losses when they are seeking a target firm to acquire.
B) If an acquisition increases the debt level of a firm the tax liability of the firm tends to increase as a result.
C) If either an increase or a decrease in the level of production causes the average cost per unit to increase the firm is currently operating at its optimal size.
D) Firms can always benefit from economies of scale if they increase the size of their firm through acquisitions.
E) If a firm uses its surplus cash to acquire another firm the shareholders of the acquiring firm immediately incur a tax liability related to the transaction.

Question

Quizplus · Accepted Answer

Statement C is correct because it describes a situation where a firm is operating at its optimal size, meaning any change in the level of production leads to inefficiencies, either from diseconomies of scale (if production increases) or from not utilizing economies of scale (if production decreases).

Which One of the Following Statements Is Correct