Q.64 The primary purpose of the passage is toThe correct answer is ✅
(C) report findings that raise questions about a reason for corporate mergers and acquisitions and suggest possible alternative reasons.Here's why (C) is correct:
- The passage presents several studies from the 1970s and 1980s showing that mergers and acquisitions (M&As) do not typically lead to financial gains for acquiring firms.
- It then highlights the paradox: despite these findings, M&As continue, and firms insist on economic motives.
- Finally, the passage suggests alternative explanations—such as executive compensation, poor oversight, managerial error, or imitation—that may better explain why these acquisitions occur.
Now, let’s eliminate the wrong options one by one:
(A) review research demonstrating the benefits of corporate mergers and acquisitions and examine some of the drawbacks that acquisition behavior entails- Wrong because the passage does not show benefits of mergers and acquisitions; it mainly shows negative findings or shortcomings of M&A activities.
- The focus is not a balanced pros-and-cons review; it's a critique.
(B) contrast the effects of corporate mergers and acquisitions on acquiring firms and on firms that are acquired- Tempting but wrong: While the passage does mention that the stock value of the target firm increases more than that of the acquiring firm, this is just one observation, not the main structure of the passage.
- The primary goal isn’t to contrast effects between two types of firms.
(D) explain changes in attitude on the part of acquiring firms toward corporate mergers and acquisitions- Wrong because the passage doesn’t discuss any historical or attitudinal change among acquiring firms.
- Firms are still saying their motives are economic; no change is noted or explained.
(E) account for a recent decline in the rate of corporate mergers and acquisitions- Wrong: There is no mention of a decline in M&A activity.
- In fact, the passage explicitly says mergers and acquisitions remain common.
65. The findings cited in the passage suggest which of the following about the outcomes of corporate mergers and acquisitions with respect to acquiring firms?✅ Correct Answer:
(C) They do not fulfill the professed goals of most acquiring firms.Why it’s correct:- The passage reports that acquiring firms often fail to maintain pre-merger profitability, that the gains do not cover acquisition premiums, and that the acquiring firm's stock rises less than the target’s.
- These findings challenge the claim that such deals are economically beneficial to acquiring firms—which is the professed goal.
- So, the findings do not support the claimed economic benefits, making (C) the best fit.
Eliminating wrong options:
- (A): “They include a decrease in value of many acquiring firms’ stocks.”
- The passage does not say acquiring firms' stock decreases—only that it increases less than the target firm's stock.
- (B): “They tend to be more beneficial for small firms than for large firms.”
- No comparison is made between small and large firms in the passage.
- (D): “They tend to be beneficial in the long term...”
- The passage does not mention long-term benefits for acquiring firms; in fact, it implies underperformance even after the merger.
- (E): “They discourage such firms from making future bids...”
- The opposite is stated: M&A activity remains common, so acquiring firms are not deterred.
66. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about corporate acquisitions?✅ Correct Answer:
(E) Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur.Why it’s correct:- The author clearly points out that economic justifications don't align with the outcomes.
- The final paragraph proposes non-economic motives: executive compensation, poor board oversight, errors in valuation, and “modeling” behavior.
- Therefore, other factors beyond economic benefit explain their frequency, making (E) a strong match.
Eliminating wrong options:
- (A): “Their known benefits to national economies explain their appeal...”
- The passage questions the rationale behind M&As for firms—not that they’re driven by national benefit awareness.
- (B): “Despite their adverse impact... they are the best way...”
- The author does not endorse M&As as the “best way” to reallocate resources—this goes beyond the passage’s tone.
- (C): “They are as likely to occur because of poor monitoring... as because of incentive compensation...”
- The passage lists both as possibilities, but does not evaluate or weigh their likelihood equally.
- (D): “They will be less prevalent in the future...”
- The passage says M&As remain common, and makes no prediction about decline.
67. The author of the passage mentions the effect of acquisitions on national economies most probably in order toThis refers to this sentence in the second paragraph:
Quote:
“Acquisitions may well have the desirable effect of channeling a nation’s resources efficiently from less to more efficient sectors of its economy, but...”
That
“but” is key—it signals the author is about to
undermine or
qualify this point.
✅ Correct Answer:
(D) cite and point out the inadequacy of one possible explanation for the prevalence of mergers and acquisitions during the 1970s and 1980s- The author acknowledges that acquisitions might help national economies but quickly shifts focus to say that individual executives pursue acquisitions for private interests, not national benefit.
- So the national benefit explanation is mentioned but then questioned or downplayed—that’s exactly what (D) says.
Eliminating wrong options:
- (A): “Provide an explanation... overlooked by the findings...”
- The author isn’t providing this as a genuine explanation; they are undermining it.
- (B): “Suggest that national economic interests played an important role...”
- The author does not suggest national interests were important; the whole point is that they probably weren’t motivating factors.
- (C): “Support a noneconomic explanation...”
- No—this sentence actually brings up an economic explanation, only to then dismiss it.
- (E): “Explain how modeling affected decisions...”
- The modeling explanation comes later, and this sentence doesn’t refer to it at all.
68. According to the passage, during the 1970s and 1980s bidding firms differed from the firms for which they bid in that bidding firmsThis is based on a part of the
first paragraph, specifically:
Quote:
“...the stock of the prospective acquiring firm tends to increase in value much less than does that of the firm for which it bids.”
✅ Correct Answer:
(E) experienced less of an increase in stock value when a prospective merger was announced- This is a direct restatement of what the passage says: bidding firms’ stock rises less than that of the target firms.
Eliminating wrong options:
- (A): “tended to be more profitable before a merger than after...”
- The passage says acquired firms’ profitability couldn’t be maintained—but that applies to the acquired, not necessarily a before-and-after comparison of bidders.
- (B): “more concerned about national economies...”
- The passage rejects national interest as a motivation; there’s no comparison here between the two firm types on that basis.
- (C): “run by managers whose actions were modeled...”
- While modeling is discussed, it applies to managers in general, not specifically in contrast to the target firms.
- (D): “anticipated greater economic advantages...”
- The passage questions whether these deals had economic advantage—this is an assumption not stated.
69. According to the passage, which of the following was true of corporate acquisitions that occurred during the 1970s and 1980s?Let’s match the options to the
actual findings in the passage.
✅ Correct Answer:
(D) The gains realized by most acquiring firms did not equal the amounts expended in acquiring target firms.From the passage:
Quote:
“A second study concluded that post-acquisition gains to most acquiring firms were
not adequate to cover the premiums paid to obtain acquired firms.”
This is
almost verbatim what option (D) says.
Eliminating wrong options:
- (A): “Few... were subsequently divested.”
- No mention of divestitures is made at all.
- (B): “Only small increases in acquired firms’ levels of profitability.”
- Actually, it says acquiring firms were unable to maintain the pre-merger profitability of the acquired firms—not that the acquired firms saw small increases.
- (C): “Most... were based on an overestimation...”
- Managerial error in valuation is mentioned as one possible factor, but not that most acquisitions were based on it.
- (E): “About half... led to long-term increases...”
- No such statistic or long-term stock trend is mentioned.
70. The author of the passage implies that which of the following is a possible partial explanation for acquisition behavior during the 1970s and 1980s?We’re looking for
something the author mentions as a contributing factor—even if only speculatively.
From the second paragraph:
Quote:
“These factors may include the incentive compensation of executives, lack of monitoring by boards of directors, and
managerial error in estimating the value of firms targeted for acquisition.”
✅ Correct Answer:
(B) Managers miscalculated the value of firms that were to be acquired.This directly corresponds to
“managerial error in estimating the value...”Eliminating wrong options:
- (A): “Managers wished to imitate... because they saw how beneficial...”
- Imitation is mentioned (“modeling”), but not because the others were financially successful—in fact, the passage disputes that those mergers were successful.
- (C): “Lack of consensus... conflicting goals...”
- This idea is not discussed anywhere.
- (D): “Compensation packages increased...”
- While incentive compensation is mentioned, the increase in total compensation during that period is not.
- (E): “Value of bidding firms’ stock increased significantly...”
- The passage says their stock increased less than the target firm’s, not that it increased significantly.
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23 Jun 2023, 02:35
Nor does it tell us which sectors are more and which are less efficient. We can't pay attention to something that is not present in the passage. 
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