The cost of a merger may outweigh the potential gain if the:
A)Present value of the acquired firm exceeds the price paid for it
B)Present value of the merged firms is greater than the sum of their individual values
C)Merger allows cost savings to occur
D)Acquired firm's shareholders receive more than the value of their firm

Question

Quizplus · Accepted Answer

The cost of a merger may outweigh the potential gain if the acquired firm's shareholders receive more than the value of their firm, as this means that the payment made for the firm was too high, and the actual benefits of the merger may not outweigh the high cost. Option A and B are potential benefits of a merger, and C is a potential factor that can lead to cost savings and increase the value of the merged firms. However, the cost of the merger should also be taken into consideration to determine if it outweighs the potential benefits.

The Cost of a Merger May Outweigh the Potential Gain