- CFA Exams
- CFA Level I Exam
- Topic 4. Corporate Issuers
- Learning Module 18. Mergers and Acquisitions
- Subject 4. Merger Transaction Characteristics
CFA Practice Question
In a stock offering,
II. The target's stocks may be interpreted as overvalued by some investors. This is similar to the signal theory.
III. The dilution effect will occur.
I. The target's shareholders share the reward and risk related to the post-merger company.
II. The target's stocks may be interpreted as overvalued by some investors. This is similar to the signal theory.
III. The dilution effect will occur.
Correct Answer: I and III
II is wrong. Investors sometimes interpret a stock offering as signal that the acquirer's (not the target's) shares may be overvalued.
User Contributed Comments 1
| User | Comment |
|---|---|
| davidt87 | dilution will occur as the acquirer will now have more shares outstanding, but the acquired net assets should offset that dilution. |