In a merger or acquisition, a firm should be acquired if:
A) it generates a positive net present value to the shareholders of an acquiring firm.
B) it is a firm in the same line of business, in which the acquirer has expertise.
C) it is a firm in a totally different line of business which will diversity the firm.
D) it pays a large dividend which will provide cash pass through to the acquirer.

Question

Quizplus · Accepted Answer

A firm should be acquired if it generates a positive net present value to the shareholders of an acquiring firm. This means that the present value of the expected cash flows from the acquired firm should be greater than the acquisition cost. This ensures that the acquisition will create value for the shareholders of the acquiring firm. B, C, and D may also be factors to consider in an acquisition, but the primary consideration should be whether the acquisition will generate value for the shareholders.

In a Merger or Acquisition, a Firm Should Be Acquired