CFA Practice Question

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CFA Practice Question

In a stock offering,

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.
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