Question

Without effective due diligence the

a. acquiring firm is likely to overpay for an acquisition.b. firm may miss its opportunity to buy a well-matched company.c. acquisition may deteriorate into a hostile takeover, reducing the value creating potential of the action.d. firm may be unable to act quickly and decisively in purchasing the target firm.

Answer 1

b. acquiring firm is likely to overpay for an acquisition.

Step-by-step explanation:

Due diligence is the process of carefully evaluating a business from different perspectives before making a buy decision. It is a measure of prudence before committing to the acquisition process. Due diligence will involve scrutiny of legal aspects and financial status of a business.

From a legal point of view, due diligence will check legal impediments such as licensing. Other legal documents to review include employee and business contracts. Financial aspects of due diligence involve verification of the accuracy of financial statements as presented by the seller.

Sellers are likely to overstate the worth of a business to attract buyers. Their instances where sellers fail to disclose liabilities. Lack of conducting due diligence will lead to the acquisition of an overpriced entity.