If an acquisition does not create value, then the Blank______.Multiple choice question.earnings per share may increase but the stock price of the acquiring firm may remain the same or declineprice per share of the acquiring firm should increase because of the growth of the firmprice per share of the acquiring firm should increase while the price-earnings ratio remains constantthe price-earnings ratio should remain constant regardless of any changes in the earnings per share
Question
If an acquisition does not create value, then the Blank______.Multiple choice question.earnings per share may increase but the stock price of the acquiring firm may remain the same or declineprice per share of the acquiring firm should increase because of the growth of the firmprice per share of the acquiring firm should increase while the price-earnings ratio remains constantthe price-earnings ratio should remain constant regardless of any changes in the earnings per share
Solution
The correct answer is: "earnings per share may increase but the stock price of the acquiring firm may remain the same or decline".
This is because if an acquisition does not create value, it means that the benefits expected from the acquisition (such as increased market share, cost savings, etc.) are not being realized. Therefore, even if the earnings per share increase due to the additional earnings from the acquired company, the stock price may not increase if investors do not see the acquisition as adding value. In fact, the stock price may even decline if investors see the acquisition as a poor use of the company's resources.
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