The price paid for a target is equal to the target's ________ plus the ________ paid in the acquisition.
A) after-bid market capitalization; premium
B) pre-bid market capitalization; administrative cost
C) pre-bid market capitalization; premium
D) pre-bid market capitalization; opportunity cost

Question

Quizplus · Accepted Answer

The pre-bid market capitalization is the market value of the target's outstanding shares before the acquisition is announced or occurs. The premium is the additional amount paid by the acquirer to persuade the target's shareholders to sell their shares. Therefore, the price paid for the target is equal to the pre-bid market capitalization plus the premium paid in the acquisition. Option A implies that the price is paid after the acquisition, which is not correct. Option B implies that administrative costs are included, which is not necessarily true. Option D mentions opportunity cost, which is not directly related to the price paid for the target.

The Price Paid for a Target Is Equal to the Target's