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Chapter 5: Q.4 (page 647)

What is the difference between horizontal integration and vertical integration? How does antitrust policy affect the nature of mergers?

Short Answer

Expert verified

Horizontal integration refers to the acquiring of competitors; whereas, in the case of vertical integration, the buyers or sellers of the company are acquired.

The antitrust policy prevents the elimination of competition.

Step by step solution

01

Explanation on Horizontal Integration

Under horizontal integration, one business entity purchases another business entity that manufactures the same goods or services as of acquiring company.

02

Explanation on Vertical Integration

Under vertical integration, one business entity purchases another business entity, providing goods or services to the acquiring business entity.

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Most popular questions from this chapter

From the base price level of 100 in 1979, Saudi Arabian and U.S. price levels in 2008 stood at 200 and 410, respectively. If the 1979 \(/riyal exchange rate was \)0.26/riyal, what should the exchange rate be in 2008? Suggestion: using purchasing power parity, adjust the exchange rate to compensate for inflation. That is, determine the relative rate of inflation between the United States and Saudi Arabia and multiply this times $/riyal of 0.26.

What is the purpose(s) of the two-step buyout from the viewpoint of the acquiring company?

The postmerger P/E ratio can move in a direction opposite to that of the immediate postmerger earnings per share. Explain why this could happen

From the base price level of 100 in 1981, Saudi Arabian and U.S. price levels in 2010 stood at 250 and 100, respectively. Assume the 1981 \(/ riyal exchange rate was \)0.46/riyal. suggestion: using the purchasing power parity, adjust the exchange rate to compensate for inflation. That is, determine the relative rate of inflation between the United States and Saudi Arabia and multiply this times $/riyal of f0.46. what would the exchange rate be in 2010?

Assume the following financial data for the Noble Corporation and Barnes

Enterprises:

Noble

Corporation

Barnes

Enterprises

Total earnings ......................................................... \(1,820,000 \)5,620,000

Number of shares of stock outstanding ................. 650,000 2,810,000

Earnings per share ................................................. \(2.80 \)2.00

Price-earnings ratio (P/E) ....................................... 203 283

Market price per share............................................ \(56 \)56

a.If all the shares of the Noble Corporation are exchanged for those of Barnes

Enterprises on a share-for-share basis, what will postmerger earnings per share

be for Barnes Enterprises? Use an approach similar to that in Table 20-3.

b.Explain why the earnings per share of Barnes Enterprises changed.

c.Can we necessarily assume that Barnes Enterprises is better off after the

merger?
See all solutions

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