Question 1

The structure of a merger transaction is summarized in a(n):

Accepted Answer

A) swap sheet. 
B) term sheet. 
C) exchange sheet. 
D) merger sheet. 
A) swap sheet. 
B) term sheet. 
C) exchange sheet. 
D) merger sheet.

Question 2

This decade is known for known for "strategic" or "global" deals that were more likely to be friendly and to involve companies in related businesses;these mergers often were designed to create strong firms on a scale that would allow them to compete globally:

Accepted Answer

A) 1960s. 
B) 1970s. 
C) 1980s. 
D) 1990s. 
A) 1960s. 
B) 1970s. 
C) 1980s. 
D) 1990s.

Question 3

If Microsoft merged with the Coca-Cola Company,this would be an example of a ________ merger.

Accepted Answer

A) conglomerate 
B) vertical 
C) horizontal 
D) diagonal 
A) conglomerate 
B) vertical 
C) horizontal 
D) diagonal

Question 4

Use the following information to answer the question(s)below.
You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel.Associated Steel's stock price is $15 and it has 10 million shares outstanding.You believe that if you buy the company and replace its management,its value will increase by 50%.You are planning on doing a leveraged buyout of Associated Steel,and will offer $20 per share for control of the company.
-Regarding your tender offer,shareholders will:

Accepted Answer

A) not tender their shares since the post LBO price is higher than the offer price. 
B) not tender their shares since the post LBO price is higher than the current price. 
C) tender their shares since the post LBO price is higher than the offer price. 
D) tender their shares since the post LBO price is lower than the current price. 
A) not tender their shares since the post LBO price is higher than the offer price. 
B) not tender their shares since the post LBO price is higher than the current price. 
C) tender their shares since the post LBO price is higher than the offer price. 
D) tender their shares since the post LBO price is lower than the current price.

Question 5

Use the following information to answer the question(s)below.
Rearden Metal has earnings per share of $2.It has 10 million shares outstanding and is trading at $20 per share.Rearden Metal is thinking of buying Associated Steel,which has earnings per share of $1.25,4 million shares outstanding,and a price per share of $15.Rearden Metal will pay for Associated Steel by issuing new shares.There are no expected synergies from the transaction.
-If Rearden offers an exchange ratio such that,at current pre-announcement share prices for both firms,the offer represents a 20% premium to buy Associated Steel,then the price per share of Associated Steel immediately after the announcement will be closest to:

Accepted Answer

A) $15.00. 
B) $17.20. 
C) $18.60. 
D) $19.10. 
A) $15.00. 
B) $17.20. 
C) $18.60. 
D) $19.10.

Question 6

You work for a levered buyout firm and are evaluating a potential buyout of Boogle Inc.Boogle's stock price is $18,and it has 3 million shares outstanding.You believe that if you buy the company and replace its dismal management team,its value will increase by 50%.You are planning on doing a levered buyout of Boogle and will offer $25 per share for control of the company.Assuming you get 50% control,what will your gain from the transaction be?

Accepted Answer

The initial value of Boogle is $18 × 3 m

Question 7

Use the information for the question(s)below.
Martin Manufacturing has earnings per share (EPS)of $3.00,5 million shares outstanding,and a share price of $32.Martin is considering buying Luther Industries,which has earnings per share of $2.50,2 million shares outstanding,and a share price of $20.Martin will pay for Luther by issuing new shares.There are no expected synergies from the transaction.
-If Martin pays no premium to acquire Luther,what will the earnings per share be after the merger?

Accepted Answer

First,since Martin is paying for the mer

Question 8

The justification for the benefits of diversification from mergers include all of the following,EXCEPT:

Accepted Answer

A) tax loss benefits. 
B) lower cost of debt or increased debt capacity. 
C) direct risk reduction. 
D) liquidity enhancement. 
A) tax loss benefits. 
B) lower cost of debt or increased debt capacity. 
C) direct risk reduction. 
D) liquidity enhancement.

Question 9

KT corporation has announced plans to acquire MJ corporation.KT is trading for $45 per share and MJ is trading for $25 per share,with a premerger value for MJ of $3 billion .If the projected synergies from the merger are $750 million,what is the maximum exchange ratio that KT could offer in a stock swap and still generate a positive NPV?

Accepted Answer

Exchange r

Question 10

Use the information for the question(s)below.
Martin Manufacturing has earnings per share (EPS)of $3.00,5 million shares outstanding,and a share price of $32.Martin is considering buying Luther Industries,which has earnings per share of $2.50,2 million shares outstanding,and a share price of $20.Martin will pay for Luther by issuing new shares.There are no expected synergies from the transaction.
-Assume that Martin pays no premium to acquire Luther.Calculate Martin's price-earnings (P/E)ratio both pre- and post-merger.

Accepted Answer

Premerger P/E = @#IMG-DLM& = 10.67
First,since Mar

Question 11

Savings that come from combining the marketing and distribution of different types of related products are called:

Accepted Answer

A) horizontal integration. 
B) vertical integration. 
C) economies of scale. 
D) economies of scope. 
A) horizontal integration. 
B) vertical integration. 
C) economies of scale. 
D) economies of scope.

Question 12

Which of the following statements regarding economies of scale and scope is FALSE?

Accepted Answer

A) Cost-reduction synergies are hard to predict and achieve. 
B) Because the CEOs of small firms receive information so quickly,small firms are often able to react in a timely way to changes in the economic environment. 
C) Synergies usually fall into two categories: cost reductions and revenue enhancements. 
D) There may also be costs associated with the size of large enterprises. 
A) Cost-reduction synergies are hard to predict and achieve. 
B) Because the CEOs of small firms receive information so quickly,small firms are often able to react in a timely way to changes in the economic environment. 
C) Synergies usually fall into two categories: cost reductions and revenue enhancements. 
D) There may also be costs associated with the size of large enterprises.

Question 13

This decade is known for hostile,"bust-up" takeovers,in which the acquirer purchased a poorly performing conglomerate and sold off its individual business units for more than the purchase price:

Accepted Answer

A) 1960s. 
B) 1970s. 
C) 1980s. 
D) 1990s. 
A) 1960s. 
B) 1970s. 
C) 1980s. 
D) 1990s.

Question 14

Which of the following statements is FALSE?

Accepted Answer

A) Once the acquirer has completed the valuation process,it is in the position to make a tender offer- that is,a public announcement of its intention to purchase a large block of shares for a specified price. 
B) If we view the pre-bid market capitalization as the stand-alone value of the target,then from the bidder's perspective,the takeover is a positive-NPV project only if the synergies created do not exceed the premium it pays. 
C) Purchasing a corporation usually constitutes a very large capital investment decision,so it requires a more accurate estimate of value that includes careful analysis of both operational aspects of the firm and the ultimate cash flows the deal will generate. 
D) A stock-swap merger is a positive-NPV investment for the acquiring shareholders if the share price of the merged firm (the acquirer's share price after the takeover)exceeds the premerger price of the acquiring firm. 
A) Once the acquirer has completed the valuation process,it is in the position to make a tender offer- that is,a public announcement of its intention to purchase a large block of shares for a specified price. 
B) If we view the pre-bid market capitalization as the stand-alone value of the target,then from the bidder's perspective,the takeover is a positive-NPV project only if the synergies created do not exceed the premium it pays. 
C) Purchasing a corporation usually constitutes a very large capital investment decision,so it requires a more accurate estimate of value that includes careful analysis of both operational aspects of the firm and the ultimate cash flows the deal will generate. 
D) A stock-swap merger is a positive-NPV investment for the acquiring shareholders if the share price of the merged firm (the acquirer's share price after the takeover)exceeds the premerger price of the acquiring firm.

Question 15

When target shareholders exchange their old stock for new stock in the acquiring firm,this is known as a(n):

Accepted Answer

A) exchange swap. 
B) stock exchange. 
C) term swap. 
D) stock swap. 
A) exchange swap. 
B) stock exchange. 
C) term swap. 
D) stock swap.

Question 16

When a hostile takeover appears to be inevitable,a target company will sometimes look for another,friendlier company to acquire it called a:

Accepted Answer

A) poison pill. 
B) classified board. 
C) golden parachute. 
D) white knight. 
A) poison pill. 
B) classified board. 
C) golden parachute. 
D) white knight.

Question 17

Which of the following statements is FALSE?

Accepted Answer

A) There are two primary mechanisms by which ownership and control of a public corporation can change: Either another corporation or group of individuals can acquire the target firm,or the target firm can merge with another firm. 
B) Merger activity is greater during economic contractions than during expansions. 
C) Mergers and acquisitions are part of what is often referred to as "the market for corporate control." 
D) The takeover market is also characterized by merger waves-peaks of heavy activity followed by quiet troughs of few transactions. 
A) There are two primary mechanisms by which ownership and control of a public corporation can change: Either another corporation or group of individuals can acquire the target firm,or the target firm can merge with another firm. 
B) Merger activity is greater during economic contractions than during expansions. 
C) Mergers and acquisitions are part of what is often referred to as "the market for corporate control." 
D) The takeover market is also characterized by merger waves-peaks of heavy activity followed by quiet troughs of few transactions.

Question 18

Which of the following statements regarding vertical integration is FALSE?

Accepted Answer

A) Vertically integrated companies may be large,but unlike other large corporations,since they remain focused in one industry,they are easy to run. 
B) A company might not be happy with how its products are being distributed,so it might decide to take control of its distribution channels. 
C) A company might conclude that it can enhance its product if it has direct control of the inputs required to make the product. 
D) The principal benefit of vertical integration is coordination.By putting two companies under central control,management can ensure that both companies work toward a common goal. 
A) Vertically integrated companies may be large,but unlike other large corporations,since they remain focused in one industry,they are easy to run. 
B) A company might not be happy with how its products are being distributed,so it might decide to take control of its distribution channels. 
C) A company might conclude that it can enhance its product if it has direct control of the inputs required to make the product. 
D) The principal benefit of vertical integration is coordination.By putting two companies under central control,management can ensure that both companies work toward a common goal.

Question 19

Which of the following statements regarding poison pills is FALSE?

Accepted Answer

A) Companies with poison pills are harder to take over,and when they are taken over,the premium that existing shareholders receive for their stock is higher. 
B) Because a poison pill increases the cost of a takeover,all else equal,a target company must be in better shape to justify the expense of waging a takeover battle. 
C) Poison pills also increase the bargaining power of the target firm when negotiating with the acquirer because poison pills make it difficult to complete the takeover without the cooperation of the target board. 
D) By adopting a poison pill,a company effectively entrenches its management by making it much more difficult for shareholders to replace bad managers,thereby potentially destroying value. 
A) Companies with poison pills are harder to take over,and when they are taken over,the premium that existing shareholders receive for their stock is higher. 
B) Because a poison pill increases the cost of a takeover,all else equal,a target company must be in better shape to justify the expense of waging a takeover battle. 
C) Poison pills also increase the bargaining power of the target firm when negotiating with the acquirer because poison pills make it difficult to complete the takeover without the cooperation of the target board. 
D) By adopting a poison pill,a company effectively entrenches its management by making it much more difficult for shareholders to replace bad managers,thereby potentially destroying value.

Question 20

What is the average market reaction to a takeover announcement?

Accepted Answer

A) The price of the target increases by 15%,while the price of the acquirer decreases by 1%. 
B) The price of the target increases by 15%,while the price of the acquirer increases by 1%. 
C) The price of the target and acquirer both increase by 15%. 
D) The price of the target increases by 1%,while the price of the acquirer increases by 15%. 
A) The price of the target increases by 15%,while the price of the acquirer decreases by 1%. 
B) The price of the target increases by 15%,while the price of the acquirer increases by 1%. 
C) The price of the target and acquirer both increase by 15%. 
D) The price of the target increases by 1%,while the price of the acquirer increases by 15%.

Exam 28: Mergers and Acquisitions

The structure of a merger transaction is summarized in a(n):

This decade is known for known for "strategic" or "global" deals that were more likely to be friendly and to involve companies in related businesses;these mergers often were designed to create strong firms on a scale that would allow them to compete globally:

If Microsoft merged with the Coca-Cola Company,this would be an example of a ________ merger.

The justification for the benefits of diversification from mergers include all of the following,EXCEPT:

Savings that come from combining the marketing and distribution of different types of related products are called:

Which of the following statements regarding economies of scale and scope is FALSE?

This decade is known for hostile,"bust-up" takeovers,in which the acquirer purchased a poorly performing conglomerate and sold off its individual business units for more than the purchase price:

Which of the following statements is FALSE?

When target shareholders exchange their old stock for new stock in the acquiring firm,this is known as a(n):

When a hostile takeover appears to be inevitable,a target company will sometimes look for another,friendlier company to acquire it called a:

Which of the following statements is FALSE?

Which of the following statements regarding vertical integration is FALSE?

Which of the following statements regarding poison pills is FALSE?

What is the average market reaction to a takeover announcement?

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Corporate Governance

Risk Management

International Corporate Finance

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