Which effect means that lenders to one company can now be paid out of the combined assets of both companies?
A)The insurance effect.
B)The co-insurance effect.
C)The taxation effect.
D)The free cash flow effect.

Question

Quizplus · Accepted Answer

The effect being described is the co-insurance effect. This occurs when two companies merge and the lenders to one company can now be paid out of the combined assets of both companies. This is because the two companies are now jointly liable for the debts of each other, effectively creating a co-insurance arrangement for the lenders.

Which Effect Means That Lenders to One Company Can Now