When analyzing a going concern acquisition the financial manager should consider:
A) the net present value of the firm post-acquisition.
B) the net book value of the firm post-acquisition.
C) the net present value of the firm pre-acquisition.
D) the net book value of the firm pre-acquisition.

Question

Quizplus · Accepted Answer

The financial manager should consider the net present value (NPV) of the firm post-acquisition because this value reflects the expected future cash flows of the firm, discounted to their present value. This provides a better indication of the true value of the firm and the potential return on investment than the net book value, which represents the historical cost of the firm's assets. The NPV pre-acquisition may also be considered, but the focus should be on the expected future cash flows after the acquisition has taken place.

When Analyzing a Going Concern Acquisition the Financial Manager Should