Which of the following statements is most CORRECT?
A) The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations, and the higher the probability that the merger will be completed.
B) Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger.
C) Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings.However, since shareholders are free to diversify their own holdings, and at what's probably a lower cost, diversification benefits is generally not a valid motive for a publicly held firm.
D) Operating economies are never a motive for mergers.
E) Tax considerations often play a part in mergers.If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes.Thus, firms with excess cash rarely undertake mergers.

Question

Quizplus · Accepted Answer

This statement is the most correct because it is widely accepted that diversification benefits are not a valid motive for a publicly held firm since shareholders can diversify their own holdings at a lower cost. The other statements are either incorrect or incomplete. A) The smaller the synergistic benefits, the less likely a merger will be completed. B) The cost of debt and debt capacity are relevant considerations when financing a merger. D) Operating economies are frequently cited as a motive for mergers. E) Tax considerations, including the effects of excess cash on taxes, can play a part in mergers.

Which of the Following Statements Is Most CORRECT