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OG - RC Passage1 - Q1

This topic has 3 expert replies and 1 member reply
fiza gupta Master | Next Rank: 500 Posts
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OG - RC Passage1 - Q1

Post Mon Oct 17, 2016 11:42 pm
Findings from several studies on corporate mergers and acquisitions during the 1970s and 1980s raise questions about why firms initiate and consummate such transactions. One study showed, for example, that acquiring firms were on average unable to maintain acquired firms’ pre-merger levels of profitability. A second study concluded that postacquisition gains to most acquiring firms were not adequate to cover the premiums paid to obtain acquired firms. A third demonstrated that, following the announcement of a prospective merger, the stock of the prospective acquiring fi rm tends to increase in value much less than does that of the firm for which it bids. Yet mergers and acquisitions remain common, and bidders continue to assert that their objectives are economic ones.

Acquisitions may well have the desirable effect of channeling a nation’s resources efficiently from less to more efficient sectors of its economy, but the individual acquisitions executives arranging these deals must see them as advancing either their own or their companies’ private economic interests. It seems that factors having little to do with corporate economic interests explain acquisitions. These factors may include the incentive compensation of executives, lack of monitoring by boards of directors, and managerial error in estimating the value of firms targeted for acquisition. Alternatively, the acquisition acts of bidders may derive from modeling: a manager does what other managers do.

Q1) It can be inferred from the passage that the author would be most likely to agree with which of the following statements about corporate acquisitions?

(A) Their known benefits to national economies explain their appeal to individual firms during the 1970s and 1980s.
(B) Despite their adverse impact on some firms,they are the best way to channel resources from less to more productive sectors of a nation’s economy.
(C) They are as likely to occur because of poor monitoring by boards of directors as to be caused by incentive compensation for managers.
(D) They will be less prevalent in the future, since their actual effects will gain wider recognition.
(E) Factors other than economic benefit to the acquiring fi rm help to explain the frequency with which they occur.

OA:E

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Post Fri Oct 21, 2016 7:34 am
fiza gupta wrote:
Thanku Sir for the great explanation
I'm a ma'am, but you're very welcome anyway! Wink

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fiza gupta Master | Next Rank: 500 Posts
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Top Reply
Post Thu Oct 20, 2016 11:16 pm
Thanku Sir for the great explanation

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Fiza Gupta

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Post Fri Oct 21, 2016 7:34 am
fiza gupta wrote:
Thanku Sir for the great explanation
I'm a ma'am, but you're very welcome anyway! Wink

_________________


Ceilidh Erickson
Manhattan Prep GMAT & GRE instructor
EdM in Mind, Brain, and Education
Harvard Graduate School of Education


Manhattan Prep instructors all have 99th+ percentile scores and expert teaching experience.
Sign up for a FREE TRIAL, and learn why we have the highest ratings in the GMAT industry!

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Free Manhattan Prep online events - The first class of every online Manhattan Prep course is free. Classes start every week.
fiza gupta Master | Next Rank: 500 Posts
Joined
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Posted:
216 messages
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6 members
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31
Target GMAT Score:
750+
Post Thu Oct 20, 2016 11:16 pm
Thanku Sir for the great explanation

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Fiza Gupta

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