A firm may be motivated to purchase another firm whenever
A) The cost to replace the target firm's assets is less than its market value
B) The replacement cost of the target firm's assets exceeds its market value
C) When the inflation rate is accelerating
D) The ratio of the target firm's market value is more than four times its book value
E) The market to book ratio is greater than one and increasing

Question

Quizplus · Accepted Answer

A firm may be motivated to purchase another firm when the replacement cost of the target firm's assets exceeds its market value, as this indicates that the firm is undervalued and could be acquired for less than the cost of building the same assets from scratch.

A Firm May Be Motivated to Purchase Another Firm Whenever