Which one of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

Question

Quizplus · Accepted Answer

Using stock financing for acquisitions is preferred by acquiring firm's shareholders when the target firm is overvalued. This is because the acquiring firm's shareholders exchange their overvalued shares for the target firm's shares, which are also overvalued. Therefore, the effects of overvaluation of the target firm are mitigated by issuing stock rather than paying cash.

Which One of the Following Is the Most Appropriate Reason