- CFA Exams
- CFA Level I Exam
- Study Session 8. Corporate Finance (2)
- Reading 23. Mergers and Acquisitions
- Subject 2. Motives for merger
CFA Practice Question
The bootstrap effect occurs when
B. a high P/E company acquires a low P/E company.
C. two companies with similar P/E ratios are combined.
A. a low P/E company acquires a high P/E company.
B. a high P/E company acquires a low P/E company.
C. two companies with similar P/E ratios are combined.
Correct Answer: B
By purchasing the low P/E firm, the acquirer is essentially exchanging higher priced shares for lower priced shares.
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