AICPA Exam CPA-Business Topic 1 Question 73 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 73
Topic #: 1

Under the Revised Model Business Corporation Act, following what type of corporate acquisition does the acquiring corporation automatically become liable for all obligations of the acquired corporation?

AA leveraged buyout of assets.

BAn acquisition of stock for debt securities.

CA cash tender offer.

DA merger.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. 7.0 percent cost of funds from retained earnings.

The cost of retained earnings is equal to the rate of return required by the firm's common shareholders (or, in effect, the return 'lost' by them when the firm chooses to fund with retained earnings). While oftentimes this rate is somewhat subjective, we are given the facts to exactly answer the question in this case. The stock is currently selling for $100/share, and the dividend is given at $7/share.

$7 / $100 = 7%

Choices 'b', 'c', and 'd' are incorrect, per the above Explanation:/calculation.

by Nana at Aug 05, 2023, 07:28 PM

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Charlie

1 months ago

Ah, the joys of corporate acquisitions. I bet the legal team at the acquiring company is just thrilled to take on all those obligations. It's like a surprise party, but with more paperwork.

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Leontine

1 months ago

D. Merger, of course! It's the old 'you break it, you buy it' rule, but for entire companies. I wonder if they offer a corporate layaway plan?

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Kiley

13 days ago

A) A leveraged buyout of assets.

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3 months ago

I think the answer is D) A merger.

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