When evaluating an acquisition you should:
A) Concentrate on book values and ignore market values.
B) Focus on the total cash flows of the merged firm.
C) Apply the rate of return that is relevant to the incremental cash flows.
D) Ignore any one-time acquisition fees or transaction costs.
E) Ignore any potential changes in management.

Question

Quizplus · Accepted Answer

When evaluating an acquisition, it's important to apply the rate of return that is relevant to the incremental cash flows, as these cash flows represent the additional value generated by the acquisition.

When Evaluating an Acquisition You Should