When conducting shareholder value at risk (SVAR)analysis for acquisitions, it is found that:
A)Acquiring firms that use cash bear all of the risk of the acquisition, while the risk in acquisitions using share swaps is borne by both sets of shareholders.
B)Acquiring firms that use stock swaps bear all of the risk of the acquisition, while the risk in acquisitions using cash is borne by both sets of shareholders.
C)The risk of an acquisition is always borne equally between the acquiring firm and target firm shareholders.
D)None of the above.

Question

Quizplus · Accepted Answer

When conducting SVAR analysis for acquisitions, it is found that acquiring firms that use cash bear all of the risk of the acquisition, while the risk in acquisitions using share swaps is borne by both sets of shareholders. This is because in cash purchases, the acquiring firm is using its own money to pay for the target company, while in share swaps, the acquiring firm is giving its own shares to the target company's shareholders. If the acquiring firm's share price drops, then the target company's shareholders will bear some of the risk, as they will have received shares that are worth less than they were when the deal was announced.

When Conducting Shareholder Value at Risk (SVAR)analysis for Acquisitions, It