In a merger or acquisition, a firm should be acquired if it:
A)generates a positive net present value to the shareholders of an acquiring firm.
B)is a firm in the same line of business in which the acquirer has expertise.
C)is a firm in a totally different line of business which will diversify the firm.
D)pays a large dividend which will provide a cash pass through to the acquirer.
E)None of the above.

Question

Quizplus · Accepted Answer

The primary reason for a merger or acquisition is to create value for the acquiring firm's shareholders. Therefore, a firm should only be acquired if it generates a positive net present value to the shareholders of the acquiring firm. Option B and option C could be valid strategies for an acquisition, but they are not the primary reason for an acquisition. Option D is incorrect, as the dividend payment does not provide any synergies or strategic benefits to the acquirer.

In a Merger or Acquisition, a Firm Should Be Acquired