#1 Wadgett TT Eq - 7

CFA Level II
#1

I’m fairly confident that the TT is incorrect here. For #1 they are asking about the current valuation of the firm. At first glance I immediately thought obviously when acquisitions fail their bid up price decreases back to a normal level. But then I thought maybe there was more info in there that would trick me. In the paragraph right above it it says that “stock price had been decreasing lately.” Markets incorporate the failed takeover the day of when the takeover is reportedly off. They wouldn’t slowly adjust over days, especially since markets are assumed to be efficient.

I swear there’s questions where I’d choose that answer and they’d mark it wrong saying it wouldn’t steadily decrease over time and a one time adjustment to the price would take place.

Can anyone explain to me why that answer is considered right?

#2

Bump

#3

compared to the other two options the first answer ( declining due to acquisition) would be more correct.

personally, i reckon the “declining over time” explanation is reasonable since in reality, markets aren’t incredible efficient, and there could be other factors into play, eg: some market participants might be valuing the intrinsic value differently than others

#4

when there is a news that acquisition will happen…normally price will increase, since the acquisition is failed, price decline - revert to its original value.