In a merger or acquisition,an asset should be acquired if it:
A) generates a positive net present value to the shareholders of an acquiring firm.
B) is a firm in the same line of business in which the acquirer has expertise.
C) is a firm in a totally different line of business which will diversify the firm.
D) pays a large dividend which will provide a cash pass through to the acquirer.
E) None of these.

Question

Quizplus · Accepted Answer

The main objective of an acquisition is to increase shareholder value. Therefore, an asset or company should only be acquired if it generates a positive net present value (NPV) to the shareholders of the acquiring firm. This means that the expected cash inflows from the acquisition should be greater than the cost of acquiring and operating the asset or company.

In a Merger or Acquisition,an Asset Should Be Acquired If