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 diversify the firm.
D) it pays a large dividend which will provide cash pass through to the acquirer.

Question

Quizplus · Accepted Answer

The primary financial rationale for a merger or acquisition is the generation of a positive net present value (NPV) to the shareholders of the acquiring firm. This indicates that the acquisition is expected to increase the wealth of the shareholders by enhancing the overall value of the firm.

In a Merger or Acquisition, a Firm Should Be Acquired