Question

Mergers can serve as a way of minimizing taxes when disposing of excess cash. Select one:

O True
O False

Business risk is the risk inherent in the firm's operations if it uses no debt. Select one:
O True
O False

Answer 1

1. False, Mergers are not primarily used as a way to minimize taxes when disposing of excess cash.

2. False, Business risk refers to the overall risk associated with a firms operations, regardless of its capital structure. It is not specially tied to the use of debt.

Answer 2

The answer to the first question is true. Mergers can indeed serve as a way of minimizing taxes when disposing of excess cash. When a company has a significant amount of cash on its balance sheet, it may be subject to higher taxes. Through mergers or acquisitions, the company can use that cash to buy assets or other companies, which can reduce its taxable income and lower its tax liability.

The answer to the second question is false. Business risk refers to the inherent risk of a company's operations, regardless of its capital structure (i.e., whether it uses debt or not). Debt financing can increase financial risk for a company due to the interest and principal payments, but it does not affect the business risk. Business risk is typically determined by factors such as the nature of the industry, the company's competitive position, and the quality of management.