Question

Which of the following is not a legitimate purpose served by the due diligence process?

Group of answer choices

a,Discovering the risks associated with the acquiree, such as unrecorded contingent liabilities.

b,Providing correct valuation of the acquiree’s assets and liabilities.

c,Informing the transaction price to be paid by the acquirer for a business.

d, Ensuring the maximum purchase price of the acquiree’s business.

Answer 1

Answer :

Option - C, Providing correct valuation of the acquiree’s assets and liabilities.

Explanation :

Due Diligence is the investigation of target business. Finding relevant and material matters associated with acquiree’s business which is useful for potential buyer's investment decision.

Due Diligence helps in

• Discovering the risks associated with the acquiree, such as unrecorded contingent liabilities.
• Providing correct valuation of the acquiree’s assets and liabilities.
• Ensuring the maximum purchase price of the acquiree’s business.

But it does not Informing the transaction price to be paid by the acquirer for a business.