In a merger with an exchange of stock, when the premerger prices are used to calculate the exchange ratio, the true cost of the merger:
A) is less than the number of shares received times the original market price.
B) is equal to the number of shares received times the original market price.
C) is greater than the number of shares received times the original market price.
D) Unchanged from the premerger value.

Question

Quizplus · Accepted Answer

The true cost of the merger is often greater than the number of shares received times the original market price due to the premium typically paid in acquisitions to obtain control of the target company. This premium reflects the additional value the acquiring company expects to gain from the merger, making the actual cost higher than just the calculated exchange ratio based on premerger prices.

In a Merger with an Exchange of Stock, When the Premerger