Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 20, Problem 3DQ
Summary Introduction
To explain: The reason behind the higher valuation that the portfolio effect of a merger has on the participating firms.
Introduction:
Merger:
An agreement between two already existing companies that combines them to form one single company is termed as a merger. This is done for the expansion of business, its share in the market and value of shareholders.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Does the signaling theory lead to the same conclusions regarding the optimal capital structure asthe trade-off theory and/or the MM theory?
what is meant by the value of a potential takeover target as an independent firm ? when can a financial analyst can just use the current market valuation as the starting point for the valuation? what cant they? what is the difference between these two valuation, if any?
o. Compare and contrast different methods of capital reconstruction, such as share buybacks, debt - for - equity swaps, and the cancellation of share capital. When might a company choose one method over another, and what are the financial implications of each?
Knowledge Booster
Similar questions
- o. Compare and contrast different methods of capital reconstruction, such as share buybacks, debt-for- equity swaps, and the cancellation of share capital. When might a company choose one method over another, and what are the financial implications of each?arrow_forwardExplain the concept of efficient markets. Are the equity capital markets inefficient?arrow_forwardQ1. Describe the process for implementing a leveraged buyout.arrow_forward
- Which of the following statements is true about perfect capital markets? Group of answer choices There are transaction costs. There are taxes There are differences in opinion. Capital markets are perfectly competitive.arrow_forwardIf a firm fails to consider growth options, would this cause it to underestimate oroverestimate projects’ NPVs? Explain.arrow_forwardIf stock market returns for merged firms are positive, which motives for horizontal merger would be supported? If stock market returns were negative, which motives would be supported? PORarrow_forward
- F1arrow_forwardWhich of the following correctly, characterizes the risks in merger arbitrage? O A. The strategy is likely to suffer large losses in market downturns. O B. The strategy is likely to suffer small losses in market downturns.arrow_forwardHow does the correlation between two stocks change the level of benefit that diversification given when combining the stocks into a portfolio? What does it means to say that there is a bigger benefit of combining these assets if they have a smaller correlation?arrow_forward
- Taking the Efficient Market Hypothesis into consideration, do you think we still need to study common stock valuation? Why or why not?arrow_forwardHow reliable is the Capital Asset Pricing Model? Can we use it to determine whether to buy the stock of a specificcompany?arrow_forward27. What are the advantages of the arbitrage pricing theory over the capital asset pricing model?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT