Question 1

Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26.Sally's has 3,000 shares outstanding at a market price of $41 a share.Neither firm has any debt.Sally's is acquiring Jennifer's for $58,000 in cash.What is the merger premium per share?

Accepted Answer

A)  $1.43
B)  $1.62
C)  $1.81
D)  $2.04
E)  $2.07F) C) and D)
G) C) and E)

Question 2

Goodday & Sons is being acquired by Baker, Inc.for $19,000 worth of Baker stock.Baker has 1,500 shares of stock outstanding at a price of $25 a share.Goodday has 1,000 shares outstanding with a market value of $16 a share.The incremental value of the acquisition is $2,000.How many new shares of stock will be issued to complete this acquisition?

Accepted Answer

A)  760.0 shares
B)  840.0 shares
C)  960.0 shares
D)  1,187.5 shares
E)  1,312.5 sharesF) D) and E)
G) B) and C)

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 diversify the firm.
D)  pays a large dividend which will provide a cash pass through to the acquirer.
E)  None of the above.F) A) and C)
G) D) and E)

Question 4

Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26.Sally's has 3,000 shares outstanding at a market price of $41 a share.Neither firm has any debt.Sally's is acquiring Jennifer's for $58,000 in cash.The incremental value of the acquisition is $2,500.What is the value of Jennifer's Boutique to Sally's?

Accepted Answer

A)  $26,000
B)  $27,600
C)  $57,100
D)  $58,200
E)  $60,500F) B) and E)
G) D) and E)

Question 5

Which of the following represent potential gains from an acquisition?
I.the replacement of ineffective managers
II.lower costs per unit produced
III.an increase in firm size so that diseconomies of scale are realized
IV.spreading of overhead costs

Accepted Answer

A)  II and III only
B)  I and IV only
C)  I, II, and IV only
D)  I, III, and IV only
E)  I, II, III, and IVF) B) and D)
G) A) and E)

Question 6

Firm V was worth $500 and Firm A had a market value of $400.Firm V acquired Firm A for $450 because they thought the combination of the new Firm VA was worth $1,000.What is the synergy from the merger of Firm V and Firm A?

Accepted Answer

A)  $50
B)  $100
C)  $450
D)  $1,000
E)  None of the above.F) C) and D)
G) A) and D) B

Question 7

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 target 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) A) and E)
G) A) and C)

Question 8

Firm Q is being acquired by Firm S for $30,000 worth of Firm S stock.The incremental value of the acquisition is $2,000.Firm Q has 1,900 shares of stock outstanding at a price of $15 a share.Firm S has 1,500 shares of stock 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 stock is $30,167?

Accepted Answer

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

Question 9

Rudy's, Inc.and Blackstone, Inc.are all-equity firms.Rudy's has 1,500 shares outstanding at a market price of $22 a share.Blackstone has 2,500 shares outstanding at a price of $38 a share.Blackstone is acquiring Rudy's for $36,000 in cash.What is the merger premium per share?

Accepted Answer

A)  $2.00
B)  $4.25
C)  $6.50
D)  $8.00
E)  $14.00F) A) and E)
G) All of the above

Question 10

A proposed acquisition may create synergy by:
I.increasing the market power of the combined firm.
II.improving the distribution network of the acquiring firm.
III.providing the combined firm with a strategic advantage.
IV.reducing the utilization of the acquiring firm's assets.

Accepted Answer

A)  I and III only
B)  II and III only
C)  I and IV only
D)  I, II, and III only
E)  I, II, III, and IVF) B) and E)
G) A) and D)

Question 11

The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n) :

Accepted Answer

A)  split-up.
B)  equity carve-out.
C)  countertender offer.
D)  white knight transaction.
E)  lockup transaction.F) B) and E)
G) A) and B)

Question 12

Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Accepted Answer

The three forms are merger, acquisition ...

Question 13

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) B) and D)
G) B) and E)

Question 14

Firm A is being acquired by Firm B for $24,000 worth of Firm B stock.The incremental value of the acquisition is $3,500.Firm A has 1,500 shares of stock outstanding at a price of $15 a share.Firm B has 1,200 shares of stock outstanding at a price of $30 a share.What is the value per share of Firm B after the acquisition?

Accepted Answer

A)  $17.50
B)  $24.00
C)  $30.00
D)  $31.00
E)  $35.00F) D) and E)
G) B) and C)

Question 15

When a building supply store acquires a lumber mill it is making a ______ acquisition.

Accepted Answer

A)  horizontal
B)  longitudinal
C)  conglomerate
D)  vertical
E)  complementary resourcesF) A) and B)
G) B) and E)

Question 16

The acquisition of a firm involved with a different production process stage than the bidder is called a _____ acquisition.

Accepted Answer

A)  conglomerate
B)  forward
C)  backward
D)  horizontal
E)  verticalF) All of the above
G) B) and D) E

Question 17

The empirical evidence strongly indicates that the stockholders of the target firm realize large wealth gains as a result of a takeover bid but the stockholders in the acquiring firm gain little, if anything.Although there exists no definitive answer as to why this is the case, several possible explanations have been proposed.List and explain three of these possible explanations for the minimal returns to the acquiring firm's stockholders.

Accepted Answer

Size differentials, competition in the t...

Question 18

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) All of the above
G) C) and E)

Question 19

Holiday & Sons is being acquired by Miller's, Inc.for $20,000 worth of Miller's stock.Miller has 1,300 shares of stock outstanding at a price of $20 a share.Holiday has 1,000 shares outstanding with a market value of $18 a share.The incremental value of the acquisition is $2,000.What is the total number of shares in the new firm?

Accepted Answer

A)  1,000 shares
B)  1,300 shares
C)  1,500 shares
D)  2,000 shares
E)  2,300 sharesF) D) and E)
G) C) and D)

Question 20

The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition.

Accepted Answer

A)  conglomerate
B)  forward
C)  backward
D)  horizontal
E)  verticalF) A) and C)
G) A) and B) A

Exam 29: Mergers and Acquisitions

Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26.Sally's has 3,000 shares outstanding at a market price of $41 a share.Neither firm has any debt.Sally's is acquiring Jennifer's for $58,000 in cash.What is the merger premium per share?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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Which of the following represent potential gains from an acquisition? I.the replacement of ineffective managers II.lower costs per unit produced III.an increase in firm size so that diseconomies of scale are realized IV.spreading of overhead costs

Correct Answer
verified

Firm V was worth $500 and Firm A had a market value of $400.Firm V acquired Firm A for $450 because they thought the combination of the new Firm VA was worth $1,000.What is the synergy from the merger of Firm V and Firm A?

Correct Answer
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B

The purchase accounting method for mergers requires that:

Correct Answer
verified

Correct Answer
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Rudy's, Inc.and Blackstone, Inc.are all-equity firms.Rudy's has 1,500 shares outstanding at a market price of $22 a share.Blackstone has 2,500 shares outstanding at a price of $38 a share.Blackstone is acquiring Rudy's for $36,000 in cash.What is the merger premium per share?

Correct Answer
verified

A proposed acquisition may create synergy by: I.increasing the market power of the combined firm. II.improving the distribution network of the acquiring firm. III.providing the combined firm with a strategic advantage. IV.reducing the utilization of the acquiring firm's assets.

Correct Answer
verified

The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n) :

Correct Answer
verified

Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Correct Answer
verified
The three forms are merger, acquisition ...
View Answer

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

Correct Answer
verified

Correct Answer
verified

When a building supply store acquires a lumber mill it is making a ______ acquisition.

Correct Answer
verified

The acquisition of a firm involved with a different production process stage than the bidder is called a _____ acquisition.

Correct Answer
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E

Correct Answer
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Size differentials, competition in the t...
View Answer

Which one of the following statements is correct?

Correct Answer
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Correct Answer
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The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition.

Correct Answer
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A

Exam 29: Mergers and Acquisitions

Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26.Sally's has 3,000 shares outstanding at a market price of $41 a share.Neither firm has any debt.Sally's is acquiring Jennifer's for $58,000 in cash.What is the merger premium per share?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following represent potential gains from an acquisition? I.the replacement of ineffective managers II.lower costs per unit produced III.an increase in firm size so that diseconomies of scale are realized IV.spreading of overhead costs

Correct AnswerverifiedShow Answer

Firm V was worth $500 and Firm A had a market value of $400.Firm V acquired Firm A for $450 because they thought the combination of the new Firm VA was worth $1,000.What is the synergy from the merger of Firm V and Firm A?

Correct AnswerverifiedB

The purchase accounting method for mergers requires that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Rudy's, Inc.and Blackstone, Inc.are all-equity firms.Rudy's has 1,500 shares outstanding at a market price of $22 a share.Blackstone has 2,500 shares outstanding at a price of $38 a share.Blackstone is acquiring Rudy's for $36,000 in cash.What is the merger premium per share?

Correct AnswerverifiedShow Answer

A proposed acquisition may create synergy by: I.increasing the market power of the combined firm. II.improving the distribution network of the acquiring firm. III.providing the combined firm with a strategic advantage. IV.reducing the utilization of the acquiring firm's assets.

Correct AnswerverifiedShow Answer

The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n) :

Correct AnswerverifiedShow Answer

Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Correct AnswerverifiedThe three forms are merger, acquisition ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a building supply store acquires a lumber mill it is making a ______ acquisition.

Correct AnswerverifiedShow Answer

The acquisition of a firm involved with a different production process stage than the bidder is called a _____ acquisition.

Correct AnswerverifiedE

Correct AnswerverifiedSize differentials, competition in the t...View AnswerShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition.

Correct AnswerverifiedA

Correct Answer
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Correct Answer
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B

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Correct Answer
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Correct Answer
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The three forms are merger, acquisition ...
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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E

Correct Answer
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Size differentials, competition in the t...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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A