Mergers that attempt to bootstrap earnings may obtain increased current earnings per share at the expense of:
A)A higher price-earnings ratio
B)Higher total combined market value
C)Reduced future growth prospects
D)Increased free-cash-flow

Question

Quizplus · Accepted Answer

Mergers that focus solely on obtaining increased current earnings may sacrifice long-term growth prospects. This may be due to the fact that the merging companies are not focused on improving operations and instead rely on cost-cutting measures to boost earnings in the short term. As a result, future growth prospects can be dampened, which can negatively impact the company's value in the long run. Higher price-earnings ratios and total combined market values may be positive outcomes of mergers, but they are not necessarily a direct result of bootstrapping earnings. Similarly, increased free-cash-flow may or may not be a result of these types of mergers.

Mergers That Attempt to Bootstrap Earnings May Obtain Increased Current