Question 1

Why is diversiﬁcation often a bad reason for a merger?

Accepted Answer

Because investors ca...

Question 2

Acquiring ﬁrms should:

Accepted Answer

A)  First value the target as a stand-alone ﬁrm.
B)  Second value synergies.
C)  Third value the merger.
D)  A and B.
E)  A, B, and C.F) A) and B)
G) C) and D)

Question 3

In a merger or acquisition, a ﬁrm should be acquired if it:

Accepted Answer

A)  generates a positive net present value to the shareholders of an acquiring ﬁrm.
B)  is a ﬁrm in the same line of business, in which the acquirer has expertise.
C)  is a ﬁrm in a totally different line of business which will diversity the ﬁrm.
D)  pays a large dividend which will provide cash pass through to the acquiror.
E)  None of the above.F) C) and D)
G) A) and E)

Question 4

When is diversiﬁcation a good reason for a merger?

Accepted Answer

When diversiﬁcation ...

Question 5

When the management and/or a small group of investors take over a ﬁrm and the shares of the ﬁrm are delisted and no longer publicly available, this action is known as a:

Accepted Answer

A)  consolidation.
B)  vertical acquisition.
C)  proxy contest.
D)  going-private transaction.
E)  None of the above.F) A) and E)
G) All of the above

Question 6

A friendly suitor that a target ﬁrm turns to as an alternative to a hostile bidder is called a:

Accepted Answer

A)  golden suitor.
B)  poison put.
C)  white knight.
D)  shark repellent.
E)  crown jewel.F) A) and C)
G) None of the above

Question 7

Firm A is planning on merging with Firm B.Firm A will pay Firm B's equityholders the current value of their equity in shares of FirmA.Firm A currently has 2,300 shares of equity outstanding at a
Market price of £20 a share.Firm B has 1,800 shares outstanding at a price of £15 a share.What is
The value of the merged ﬁrm?

Accepted Answer

A)  £73,000
B)  £75,000
C)  £76,667
D)  £77,778
E)  £78,000F) A) and B)
G) A) and C)

Question 8

Which one of the following combinations of ﬁrms would beneﬁt the most through the use of complementary resources?

Accepted Answer

A)  A ski resort and a travel trailer sales outlet
B)  A golf resort and a ski resort
C)  A hotel and a home improvement center
D)  A swimming pool distributor and a kitchen designer
E)  A fast food restaurant and a dry cleanerF) A) and B)
G) D) and E)

Question 9

In a tax-free acquisition, the shareholders of the target ﬁrm:

Accepted Answer

A)  receive income that is considered to be tax-exempt.
B)  gift their shares to a tax-exempt organization and therefore have no taxable gain.
C)  are viewed as having exchanged their shares.
D)  sell their shares to a qualifying entity thereby avoiding both income and capital gainsTaxes.
E)  sell their shares at cost thereby avoiding the capital gains tax.F) B) and D)
G) None of the above

Question 10

Consider the following two statements: (i)  In a merger, the bidding ﬁrm can deal directly with the shareholders of a target ﬁrm via a tender
Offer.
(ii)  Complete absorption of one ﬁrm by another requires a merger.

Accepted Answer

A)  (i)  is correct, (ii)  is incorrect.
B)  (ii)  is correct, (i)  is incorrect.
C)  Both (i)  and (ii)  are correct.
D)  Both (i)  and (ii)  are incorrect.
E)  (i)  and (ii)  only hold in a hostile takeover.F) None of the above
G) C) and E)

Question 11

A dissident group solicits votes in an attempt to replace existing management.This is called a:

Accepted Answer

A)  tender offer.
B)  shareholder derivative action.
C)  proxy contest.
D)  management freeze-out.
E)  shareholder's revenge.F) A) and B)
G) B) and C)

Question 12

Firm Q is being acquired by Firm S for £30,000 worth of Firm S equity.The incremental value of the acquisition is £2,000.Firm Q has 1,900 shares of equity outstanding at a price of £15 a share.Firm S
Has 1,500 shares of equity outstanding at a price of £40 a share.What is the net present value of
The acquisition given that the actual cost of the acquisition using company equity is £30,167?

Accepted Answer

A)  £167
B)  £225
C)  £333
D)  £425
E)  £433F) C) and D)
G) A) and B)

Question 13

Defensive merger tactics are designed to thwart unwanted takeovers and mergers.Do such activities work to the advantage of equityholders all of the time? Are these types of activities ethical? Who do you think beneﬁts most from these activities?

Accepted Answer

Acknowledgement that defensive tactics "...

Question 14

Which one of the following statements is correct?

Accepted Answer

A)  If an acquisition is made with cash then the cost of that acquisition is dependent upon theAcquisition gains.
B)  Acquisitions made by exchanging shares of equity are normally taxable transactions.
C)  The management of an acquiring ﬁrm may put itself at risk of losing control of the ﬁrm ifThey make acquisitions using shares of equity.
D)  The equityholders of the acquiring ﬁrm will be better off when an acquisition results inLosses if the acquisition was made with cash rather than with equity.
E)  Acquisitions based on legitimate business purposes are not taxable transactionsRegardless of the means of ﬁnancing used.F) B) and C)
G) A) and E)

Question 15

Consider the following two statements: (i)  The higher the price of the bidder's equity, the more likely it is that the bidder wants to pay with
Cash.
(ii)  The acquirer's equity price generally falls upon the announcement of an equity-for-equity deal.

Accepted Answer

A)  (i)  is correct, (ii)  is incorrect.
B)  (ii)  is correct, (i)  is incorrect.
C)  Both (i)  and (ii)  are correct.
D)  Both (i)  and (ii)  are incorrect.
E)  Acquirers do not hold equity.F) C) and D)
G) A) and E)

Question 16

Suppose that General Motors has made an offer to acquire General Mills.Ignoring potential antitrust problems, this merger would be classiﬁed as a:

Accepted Answer

A)  monopolistic merger.
B)  horizontal merger.
C)  vertical merger.
D)  conglomerate merger.
E)  None of the above.F) A) and E)
G) None of the above

Question 17

Which one of the following statements is correct?

Accepted Answer

A)  A spin-off frequently follows an equity carve-out.
B)  A split-up frequently follows a spin-off.
C)  An equity carve-out is a speciﬁc type of acquisition.
D)  A spin-off involves an initial public offering.
E)  A divestiture means that the original ﬁrm ceases to exist.F) A) and D)
G) A) and B)

Question 18

Alto and Solo are all-equity ﬁrms.Alto has 2,400 shares outstanding at a market price of £24 a share.Solo has 4,000 shares outstanding at a price of £17 a share.Solo is acquiring Alto for
£63,000 in cash.The incremental value of the acquisition is £5,500.What is the net present value of
Acquiring Alto to Solo?

Accepted Answer

A)  £100
B)  £400
C)  £1,200
D)  £2,400
E)  £5,500F) All of the above
G) C) and E)

Question 19

The purchase accounting method for mergers require that:

Accepted Answer

A)  the excess of the purchase price over the fair market value of the target ﬁrm be recordedAs a one-time expense on the income statement of the acquiring ﬁrm.
B)  goodwill be amortized on a yearly basis.
C)  the equity of the acquiring ﬁrm be reduced by the excess of the purchase price over theFair market value of the target ﬁrm.
D)  the assets of the target ﬁrm be recorded at their fair market value on the balance sheet ofThe acquiring ﬁrm.
E)  the excess amount paid for the target ﬁrm be recorded as a tangible asset on the books ofThe acquiring ﬁrm.F) A) and E)
G) C) and D)

Question 20

Consider the following two statements: (i)  The more predictable cash ﬂows of acquirer and target, the easier it is to assess merger
Synergies.
(ii)  Because of the merger, the synergies are equally shared between acquirer and target.

Accepted Answer

A)  (i)  is correct, (ii)  is incorrect.
B)  (ii)  is correct, (i)  is incorrect.
C)  Both (i)  and (ii)  are correct.
D)  Both (i)  and (ii)  are incorrect.
E)  (ii)  is only correct if acquirer and target are equally big.F) All of the above
G) C) and D)

Exam 28: Mergers and Acquisitions

Consider the following two statements: (i) In a merger, the bidding ﬁrm can deal directly with the shareholders of a target ﬁrm via a tender Offer. (ii) Complete absorption of one ﬁrm by another requires a merger.

Correct Answer
verified

When is diversiﬁcation a good reason for a merger?

Correct Answer
verified
When diversiﬁcation ...
View Answer

Which one of the following statements is correct?

Correct Answer
verified

Defensive merger tactics are designed to thwart unwanted takeovers and mergers.Do such activities work to the advantage of equityholders all of the time? Are these types of activities ethical? Who do you think beneﬁts most from these activities?

Correct Answer
verified
Acknowledgement that defensive tactics "...
View Answer

In a tax-free acquisition, the shareholders of the target ﬁrm:

Correct Answer
verified

A dissident group solicits votes in an attempt to replace existing management.This is called a:

Correct Answer
verified

When the management and/or a small group of investors take over a ﬁrm and the shares of the ﬁrm are delisted and no longer publicly available, this action is known as a:

Correct Answer
verified

Correct Answer
verified

Consider the following two statements: (i) The higher the price of the bidder's equity, the more likely it is that the bidder wants to pay with Cash. (ii) The acquirer's equity price generally falls upon the announcement of an equity-for-equity deal.

Correct Answer
verified

Why is diversiﬁcation often a bad reason for a merger?

Correct Answer
verified
Because investors ca...
View Answer

Acquiring ﬁrms should:

Correct Answer
verified

The purchase accounting method for mergers require that:

Correct Answer
verified

Correct Answer
verified

Which one of the following combinations of ﬁrms would beneﬁt the most through the use of complementary resources?

Correct Answer
verified

Suppose that General Motors has made an offer to acquire General Mills.Ignoring potential antitrust problems, this merger would be classiﬁed as a:

Correct Answer
verified

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

A friendly suitor that a target ﬁrm turns to as an alternative to a hostile bidder is called a:

Correct Answer
verified

Consider the following two statements: (i) The more predictable cash ﬂows of acquirer and target, the easier it is to assess merger Synergies. (ii) Because of the merger, the synergies are equally shared between acquirer and target.

Correct Answer
verified

In a merger or acquisition, a ﬁrm should be acquired if it:

Correct Answer
verified

Exam 28: Mergers and Acquisitions

Consider the following two statements: (i) In a merger, the bidding ﬁrm can deal directly with the shareholders of a target ﬁrm via a tender Offer. (ii) Complete absorption of one ﬁrm by another requires a merger.

Correct AnswerverifiedShow Answer

When is diversiﬁcation a good reason for a merger?

Correct AnswerverifiedWhen diversiﬁcation ...View AnswerShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Defensive merger tactics are designed to thwart unwanted takeovers and mergers.Do such activities work to the advantage of equityholders all of the time? Are these types of activities ethical? Who do you think beneﬁts most from these activities?

Correct AnswerverifiedAcknowledgement that defensive tactics "...View AnswerShow Answer

In a tax-free acquisition, the shareholders of the target ﬁrm:

Correct AnswerverifiedShow Answer

A dissident group solicits votes in an attempt to replace existing management.This is called a:

Correct AnswerverifiedShow Answer

When the management and/or a small group of investors take over a ﬁrm and the shares of the ﬁrm are delisted and no longer publicly available, this action is known as a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider the following two statements: (i) The higher the price of the bidder's equity, the more likely it is that the bidder wants to pay with Cash. (ii) The acquirer's equity price generally falls upon the announcement of an equity-for-equity deal.

Correct AnswerverifiedShow Answer

Why is diversiﬁcation often a bad reason for a merger?

Correct AnswerverifiedBecause investors ca...View AnswerShow Answer

Acquiring ﬁrms should:

Correct AnswerverifiedShow Answer

The purchase accounting method for mergers require that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following combinations of ﬁrms would beneﬁt the most through the use of complementary resources?

Correct AnswerverifiedShow Answer

Suppose that General Motors has made an offer to acquire General Mills.Ignoring potential antitrust problems, this merger would be classiﬁed as a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

A friendly suitor that a target ﬁrm turns to as an alternative to a hostile bidder is called a:

Correct AnswerverifiedShow Answer

Consider the following two statements: (i) The more predictable cash ﬂows of acquirer and target, the easier it is to assess merger Synergies. (ii) Because of the merger, the synergies are equally shared between acquirer and target.

Correct AnswerverifiedShow Answer

In a merger or acquisition, a ﬁrm should be acquired if it:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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When diversiﬁcation ...
View Answer

Correct Answer
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Correct Answer
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Acknowledgement that defensive tactics "...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Because investors ca...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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