Which of the following statements regarding reverse mergers is true?
A)In a reverse merger, money flows out of the public sector into the private sector.
B)In a reverse merger, a large, publicly-held company spins off one of its divisions, which itself becomes a publicly-traded company.
C)A reverse merger is a method of making a publicly-held firm private once again.
D)In a reverse merger, a large, privately-held firm merges with a smaller firm that is publicly-held.

Question

Quizplus · Accepted Answer

In a reverse merger, a larger, privately-held firm merges with a smaller firm that is already publicly-held. This allows the private company to become publicly-traded without the need for an initial public offering (IPO). Option A is incorrect, as money flows from private investors to the public when a company goes public via an IPO. Option B is incorrect, as that describes a spin-off rather than a reverse merger. Option C is incorrect, as a reverse merger is the opposite of a firm going private. In a reverse merger, a large, privately-held firm merges with a smaller firm that is publicly-held. This allows the private firm to become a publicly-traded entity without going through the traditional Initial Public Offering (IPO) process. Money may or may not flow out of the public sector, depending on the specific details of the merger. Choice A is incorrect because reverse mergers do not necessarily involve money flowing out of the public sector. Choice B is incorrect because it describes a spin-off, not a reverse merger. Choice C is incorrect because it describes the opposite of a reverse merger.

Which of the Following Statements Regarding Reverse Mergers Is True