- CFA Exams
- CFA Level I Exam
- Study Session 8. Corporate Finance (2)
- Reading 23. Mergers and Acquisitions
- Subject 4. Transaction characteristics
CFA Practice Question
In a stock purchase,
II. Normally 50%+ of the shareholders of the target company need to approve the transaction.
III. The acquirer generally avoids the assumption of liabilities.
I. The acquirer's shareholders must pay tax on gains with the merger transaction, but there are no taxes at the corporate level.
II. Normally 50%+ of the shareholders of the target company need to approve the transaction.
III. The acquirer generally avoids the assumption of liabilities.
A. I and II
B. II and III
C. II only
Explanation: I is false. The target company's shareholders must pay tax on gains.
III is false. The acquirer also assumes the target's liabilities.
User Contributed Comments 2
| User | Comment |
|---|---|
| krisscfa | I. The Target's (not acquirer's) shareholders must pay tax on gains with the merger transaction, but there are no taxes at the corporate level. III. The acquirer generally assumes all liabilities. |
| LoCo83 | III. Acquirer avoids the assumption of liabilities in an ASSET purchase... a stock purchase assumes the associated leverage/liabilities. |