One of the effects of a merger that can easily mislead investors into overvaluing a firm is the:
A) Appearance of earnings per share growth when no such growth exists.
B) Change in the number of shares outstanding in an all cash merger.
C) Increase in total assets as a result of goodwill recognition under the pooling of interest accounting system.
D) Change in the total value of a firm under the pooling of interest accounting system.
E) Increase in cash flows due to the additional leverage required to fund the acquisition.

Question

Quizplus · Accepted Answer

The appearance of earnings per share (EPS) growth can mislead investors into overvaluing a firm because it may not reflect actual growth in the company's profitability or operational efficiency. This can happen in mergers when the combined EPS appears to increase due to the accounting treatments or synergies projected from the merger, rather than from genuine growth in the underlying business.

One of the Effects of a Merger That Can Easily