20. When evaluating an acquisition you should a. concentrate on book values and
ID: 1148910 • Letter: 2
Question
20. When evaluating an acquisition you should a. concentrate on book values and ignore market values. b. focus on the total cash flows of the merged firm. c. apply the rate of return that is relevant to the incremental cash flows. d. ignore any one-time acquisition fees or transaction costs. e. ignore any potential changes in management. 21·The shareholders of a target firm benefit the most when : a. an acquiring firm has the better management team and replaces the target firm's managers. b. the management of the target firm is more efficient than the management of the acquiring firm which replaces them c. the management of both the acquiring firm and the target firm are as equivalent as possibl e. d. the current management team of the target firm is kept in place even though the managers of the acquiring firm are more suited to manage the target firm's situation. e. the current management team of the target firm is technologically knowledgeable but yet ineffective. 22. The value of a target firm to the acquiring firm is equal to a. the value of the target firm as a separate entity plus the incremental value derived from the acquisition. b. the purchase cost of the target firm. c. the value of the merged firm minus the value of the target firm as a separate entity d. the purchase cost plus the incremental value derived from the acquisition. e. the incremental value derived from the acquisition.Explanation / Answer
20.C) when evaluating an acquisition we should apply the rate of return that is relevant to the incremental cash flows.
21.A) the shareholder of a target firm benefit the most when an acquiring firm has better management team and replaces the target firm's managers
22.A)The value of a target firm to the acquiring firm is equal to the value of the target firm as a separate entity plus the synergy derived from the acquisition.
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