Question 1

Assume an acquiring firm obtained control of a target firm through a tender offer.This group is now proposing a merger that is generally referred to as a:

Accepted Answer

A)  proxy fight.
B)  street sweep.
C)  waning motion.
D)  toehold.
E)  cleanup merger.F) All of the above
G) A) and C)

Question 2

If an acquisition does not create value,then the:

Accepted Answer

A)  earnings per share of the acquiring firm must be the same both before and after the acquisition.
B)  earnings per share can change but the stock price of the acquiring company should remain constant.
C)  price per share of the acquiring company should increase because of the growth of the firm.
D)  earnings per share will most likely increase while the price-earnings ratio remains constant.
E)  price-earnings ratio should remain constant regardless of any changes in the earnings per share.F) A) and E)
G) All of the above

Question 3

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n) :

Accepted Answer

A)  lockup transaction.
B)  bear hug.
C)  equity carve-out.
D)  spin-off.
E)  split-up.F) D) and E)
G) B) and E)

Question 4

A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Accepted Answer

A)  supermajority amendment.
B)  standstill agreement.
C)  greenmail provision.
D)  poison pill amendment.
E)  white knight provision.F) A) and C)
G) A) and E)

Question 5

Firm X has a market value of $8,400 with 120 shares outstanding and a price per share of $70.Firm Y has a market value of $2,000 with 100 shares outstanding and a price per share of $20.Firm X is acquiring Firm Y by exchanging 30 of its shares for all 100 of Firm Y's shares.Assume the merger creates $400 of synergy.What will be the value of Firm A's shareholders' stake in the merged firm?

Accepted Answer

A)  $8,080
B)  $9,200
C)  $8,820
D)  $8,640
E)  $9,050F) B) and E)
G) A) and B)

Question 6

The purchase accounting method for mergers requires that:

Accepted Answer

A)  the excess of the purchase price over the fair market value of the target firm be recorded as 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 the fair market value of the target firm.
D)  the assets of the acquired firm be recorded at their fair market value on the balance sheet of the acquiring firm.
E)  the excess amount paid for the target firm be recorded as a tangible asset on the books of the acquiring firm.F) B) and E)
G) None of the above

Question 7

Herbal Gardens has a market value of $380 while Veggies has a market value of $530.Veggies is merging with Herbal Gardens and expects the combined firm to have a market value of $950.If the current Herbal Garden shareholders obtain $400 of equity in the new firm,how much synergy was allocated to the Veggies shareholders?

Accepted Answer

A)  $0
B)  $20
C)  $25
D)  $15
E)  $40F) A) and B)
G) A) and D)

Question 8

Firm A is acquiring Firm B for $40,000 in cash.Firm A has a current market value of $66,000 while Firm B's current market value is $38,000.The synergy value from the acquisition is $2,500.What is the value of Firm A after the acquisition?

Accepted Answer

A)  $108,500
B)  $68,500
C)  $45,000
D)  $66,500
E)  $106,500F) A) and B)
G) D) and E)

Question 9

Suppose that Ford and General Motors were to merge.Ignoring potential antitrust problems,this merger would be classified as a(n) :

Accepted Answer

A)  horizontal merger.
B)  vertical merger.
C)  conglomerate merger.
D)  tax inversion merger.
E)  equity carve-out merger.F) None of the above
G) A) and B)

Question 10

Jay's has a market value of $3,600 and believes that if it acquires Benny's in a stock transaction the combination of the new firm will be worth $6,000 given the expected synergy of $200.If Jay's wants to keep 75 percent of the synergy for itself,what should be the value of the stock it issues to Benny's?

Accepted Answer

A)  $2,050
B)  $2,250
C)  $2,150
D)  $2,000
E)  $2,500F) A) and D)
G) B) and D)

Question 11

Suppose that General Motors makes 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)  equity carve-out merger.F) A) and D)
G) B) and D)

Question 12

Firm A and Firm B join to create Firm AB.This is an example of:

Accepted Answer

A)  a tender offer.
B)  an acquisition of assets.
C)  an acquisition of stock.
D)  a consolidation.
E)  a merger.F) B) and E)
G) A) and B)

Question 13

The two sources of value created by an LBO are:

Accepted Answer

A)  the tax benefit of debt and increased sales.
B)  lower tax and interest payments.
C)  lower interest expenses and increased efficiency.
D)  increased efficiency and the interest tax shield.
E)  lower taxes and lower dividends.F) None of the above
G) A) and E)

Question 14

Tiger's is merging with Lion's.Tiger's has debt with a face value of $80 and Lion's has debt with a face value of $50.The pre-merger values of the firms given two economic states with equal probabilities of occurrence are as follows:  What will be the combined gain or loss to the bondholders of these two firms if the merger provides no synergy and Lion's stockholders receive stock in the combined firm in an amount equal to the stand-alone value of Lion's?

Accepted Answer

A)  $0
B)  $25
C)  −$5
D)  $5
E)  $10F) C) and D)
G) All of the above

Question 15

Assume a merger of two levered firms produced no synergy.In this case,the:

Accepted Answer

A)  acquiring firm's shareholders would neither gain nor lose any value.
B)  bondholders would probably benefit at shareholders' expense.
C)  diversification effect would only benefit the acquired firm's shareholders.
D)  combined shareholders would benefit at the expense of all debt holders.
E)  shareholders and bondholders would fail to realize any benefits or losses.F) A) and B)
G) All of the above

Question 16

Western has a market value of $950 with 50 shares outstanding and a price per share of $19.Eastern has a market value of $3,000 with 120 shares outstanding and a price per share of $25.Eastern is acquiring Western by exchanging 40 of its shares for all 50 of Western's shares.What is the cost of the merger to Eastern's stockholders if the merger creates $200 of synergy?

Accepted Answer

A)  $1,333.33
B)  $1,225.00
C)  $1,037.50
D)  $1,000.00
E)  $950.00F) None of the above
G) B) and E)

Question 17

Firm V has a market value of $450 and Firm A has a market value of $375.If the two firms merged their estimated combined value is $900.What is the synergy of the merger?

Accepted Answer

A)  $50
B)  $75
C)  $25
D)  $20
E)  $40F) C) and D)
G) D) and E)

Question 18

________ can provide a potential tax gain from an acquisition.

Accepted Answer

A)  A reduction in the level of debt
B)  An increase in surplus funds
C)  The combining of multi-state operations
D)  A decreased use of leverage
E)  Increased diseconomies of scaleF) A) and C)
G) A) and E)

Question 19

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 gains taxes.
E)  sell their shares at cost thereby avoiding the capital gains tax.F) A) and C)
G) D) and E)

Question 20

Which one of the following is most likely a good candidate for an acquisition that could benefit from the use of complementary resources?

Accepted Answer

A)  A sports arena that is home only to an indoor hockey team
B)  A hotel in a busy downtown business district of a major city
C)  A day care center located near a major route into the main business district of a large city
D)  An amusement park located in a centralized Florida location
E)  A fast food restaurant located near a major transportation hubF) B) and C)
G) A) and E)

Exam 29: Mergers,acquisitions,and Divestitures

Firm A is acquiring Firm B for $40,000 in cash.Firm A has a current market value of $66,000 while Firm B's current market value is $38,000.The synergy value from the acquisition is $2,500.What is the value of Firm A after the acquisition?

Correct Answer
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Correct Answer
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Suppose that Ford and General Motors were to merge.Ignoring potential antitrust problems,this merger would be classified as a(n) :

Correct Answer
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Correct Answer
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The purchase accounting method for mergers requires that:

Correct Answer
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Which one of the following is most likely a good candidate for an acquisition that could benefit from the use of complementary resources?

Correct Answer
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Firm V has a market value of $450 and Firm A has a market value of $375.If the two firms merged their estimated combined value is $900.What is the synergy of the merger?

Correct Answer
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If an acquisition does not create value,then the:

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

Correct Answer
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Correct Answer
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Assume a merger of two levered firms produced no synergy.In this case,the:

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

Correct Answer
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The distribution of shares in a subsidiary to existing parent company stockholders is called a(n) :

Correct Answer
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Firm A and Firm B join to create Firm AB.This is an example of:

Correct Answer
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Correct Answer
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Correct Answer
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A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Correct Answer
verified

Assume an acquiring firm obtained control of a target firm through a tender offer.This group is now proposing a merger that is generally referred to as a:

Correct Answer
verified

The two sources of value created by an LBO are:

Correct Answer
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________ can provide a potential tax gain from an acquisition.

Correct Answer
verified

Exam 29: Mergers,acquisitions,and Divestitures

Firm A is acquiring Firm B for $40,000 in cash.Firm A has a current market value of $66,000 while Firm B's current market value is $38,000.The synergy value from the acquisition is $2,500.What is the value of Firm A after the acquisition?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that Ford and General Motors were to merge.Ignoring potential antitrust problems,this merger would be classified as a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The purchase accounting method for mergers requires that:

Correct AnswerverifiedShow Answer

Which one of the following is most likely a good candidate for an acquisition that could benefit from the use of complementary resources?

Correct AnswerverifiedShow Answer

Firm V has a market value of $450 and Firm A has a market value of $375.If the two firms merged their estimated combined value is $900.What is the synergy of the merger?

Correct AnswerverifiedShow Answer

If an acquisition does not create value,then the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume a merger of two levered firms produced no synergy.In this case,the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n) :

Correct AnswerverifiedShow Answer

Firm A and Firm B join to create Firm AB.This is an example of:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Correct AnswerverifiedShow Answer

Assume an acquiring firm obtained control of a target firm through a tender offer.This group is now proposing a merger that is generally referred to as a:

Correct AnswerverifiedShow Answer

The two sources of value created by an LBO are:

Correct AnswerverifiedShow Answer

________ can provide a potential tax gain from an acquisition.

Correct AnswerverifiedShow Answer

Correct Answer
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