Question 1

If Walt Disney and American Airlines merged, it would be an example of a:

Accepted Answer

A)  consolidation merger. 
B)  conglomerate merger. 
C)  vertical merger. 
D)  horizontal merger. 
A)  consolidation merger. 
B)  conglomerate merger. 
C)  vertical merger. 
D)  horizontal merger.

Question 2

Suppose a linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt ratio and the profit margin. Based on past bankruptcy experience, the linear probability model is estimated as:
PDi = 0.25 (debt ratio) + 0.12 (profit margin)
A firm you are thinking of lending to has a debt ratio of 62 percent and a profit margin of 14 percent. Calculate the firm's expected probability of default, or bankruptcy.

Accepted Answer

A)  17.18 percent 
B)  2.604 percent 
C)  14.99 percent 
D)  19.09 percent 
A)  17.18 percent 
B)  2.604 percent 
C)  14.99 percent 
D)  19.09 percent

Question 3

Consider a market that has three firms with the following market shares:
Firm A 25 percent
Firm B 55 percent
Firm C 20 percent
Suppose Firm A wants to acquire Firm C so that the post-acquisition market would exhibit the following shares:
A + C = 45 percent
B = 55 percent
What is the change in the HHI resulting from the merger?

Accepted Answer

A)  1,000 
B)  4,050 
C)  5,050 
D)  No change 
A)  1,000 
B)  4,050 
C)  5,050 
D)  No change

Question 4

If Whole Foods grocery store buys Whole Wheat Bread, this would be an example of a:

Accepted Answer

A)  horizontal merger. 
B)  vertical merger. 
C)  market extension merger. 
D)  conglomerate merger. 
A)  horizontal merger. 
B)  vertical merger. 
C)  market extension merger. 
D)  conglomerate merger.

Question 5

The Justice Department has been asked to review a merger request for a market with the following four firms.
$$\begin{array} { c r } 
\text { Fim } & \text { Assets } \
\text { A } & \$ 10 \text { million } \
B & 20 \text { million } \
\text { C } & 100 \text { million } \
\text { D } & 30 \text { million }
\end{array}$$
If Firm A acquires Firm D, what is the HHI for the new market?

Accepted Answer

A)  100 
B)  625 
C)  3,906.25 
D)  4,687.50 
A)  100 
B)  625 
C)  3,906.25 
D)  4,687.50

Question 6

The main reason for a vertical merger is:

Accepted Answer

A)  avoidance of fixed costs. 
B)  elimination of costs of searching for input prices. 
C)  control over input prices. 
D)  All of the options. 
A)  avoidance of fixed costs. 
B)  elimination of costs of searching for input prices. 
C)  control over input prices. 
D)  All of the options.

Question 7

An agreement in which creditors voluntarily reduce their claims on the firm, receiving only a partial payment for their claims, by reducing the principal amount or the interest rate on the debt or by taking equity in exchange for debt is a ________.

Accepted Answer

A)  Extension 
B)  Composition 
C)  Workout 
D)  none of the above 
A)  Extension 
B)  Composition 
C)  Workout 
D)  none of the above

Question 8

J&J Inc. declared bankruptcy through a Chapter 7 filing. Consider the following data in millions of dollars and determine the funds available for secured creditors.
-Proceeds from the liquidation of assets = $130
-First mortgage = $100
-Administration expenses associated with the bankruptcy = $3
-Notes payable to the banks = $25
-Subordinated debentures = $5
-Taxes due to federal, state, and other governmental agencies = $1
-Wages due employees (8,500 employees) = $18

Accepted Answer

A)  $79 
B)  $84 
C)  $109 
D)  $0 
A)  $79 
B)  $84 
C)  $109 
D)  $0

Question 9

Cost savings not directly due to economies of scope or economies of scale are referred to as:

Accepted Answer

A)  economies of scale. 
B)  economies of scope. 
C)  x-efficiencies. 
D)  none of the options. 
A)  economies of scale. 
B)  economies of scope. 
C)  x-efficiencies. 
D)  none of the options.

Question 10

Which of the following involves a firm and its creditors agreeing to a private reorganization outside the formal bankruptcy process?

Accepted Answer

A)  Consolidation bankruptcy 
B)  Prepackaged bankruptcy 
C)  Chapter 13 
D)  Chapter 7 
A)  Consolidation bankruptcy 
B)  Prepackaged bankruptcy 
C)  Chapter 13 
D)  Chapter 7

Question 11

LD Inc. declared bankruptcy through a Chapter 7 filing. Consider the following data in millions of dollars and determine the funds available for secured creditors.
-Proceeds from the liquidation of assets = $225
-First mortgage = $50
-Administration expenses associated with the bankruptcy = $5
-Notes payable to the banks = $205
-Subordinated debentures = $350
-Taxes due to federal, state, and other governmental agencies = $17
-Wages due employees (2,000 employees) = $6

Accepted Answer

A)  $197 
B)  $147 
C)  $199 
D)  $149 
A)  $197 
B)  $147 
C)  $199 
D)  $149

Question 12

Crib World is considering a merger with Tots Supply Stores. Crib's total operating costs of producing services are $250,000 for sales volume of $1.25 million. Tots' total operating costs of producing services are $210,000 for a sales volume (JP) of $900,000. Calculate the average cost of production for the Crib and Tots firms, respectively.

Accepted Answer

A)  20 percent, 23.33 percent 
B)  23.33 percent, 20 percent 
C)  27.78 percent, 16.8 percent 
D)  21.4 percent, 21.4 percent 
A)  20 percent, 23.33 percent 
B)  23.33 percent, 20 percent 
C)  27.78 percent, 16.8 percent 
D)  21.4 percent, 21.4 percent

Question 13

Suppose that the financial ratios of a potential borrowing firm took the following values: X1 = Net working capital/Total assets = 0.05, X2 = Retained earnings/Total assets = 0.12, X3 = Earnings before interest and taxes/Total assets = 0.17, X4 = Market value of equity/Book value of long-term debt = 0.42, X5 = Sales/Total assets ratio = 0.6. Calculate and interpret the Altman's Z-score for this firm.

Accepted Answer

A)  1.64; High risk 
B)  1.64; Indeterminate 
C)  1.99; Low risk 
D)  2.79; Indeterminate 
A)  1.64; High risk 
B)  1.64; Indeterminate 
C)  1.99; Low risk 
D)  2.79; Indeterminate

Question 14

Which of the following is a formal bankruptcy proceeding involving the reorganization of the corporation with some provision for repayment to the firm's creditors?

Accepted Answer

A)  Chapter 7 
B)  Chapter 11 
C)  Chapter 13 
D)  Chapter 17 
A)  Chapter 7 
B)  Chapter 11 
C)  Chapter 13 
D)  Chapter 17

Question 15

Which of these is the person who liquidates the firm's assets through a private sale or public auction and then distributes any proceeds from the sale to the firms' creditors and stockholders?

Accepted Answer

A)  Assignor 
B)  Grantor 
C)  Trustor 
D)  Trustee 
A)  Assignor 
B)  Grantor 
C)  Trustor 
D)  Trustee

Question 16

Suppose that the financial ratios of a potential borrowing firm took the following values: X1 = Net working capital/Total assets = 0.36, X2 = Retained earnings/Total assets = 0.08, X3 = Earnings before interest and taxes/Total assets = 0.25, X4 = Market value of equity/Book value of long-term debt = 0.80, X5 = Sales/Total assets ratio = 0.75. Calculate and interpret the Altman's Z-score for this firm.

Accepted Answer

A)  2.24; High risk 
B)  2.24; Indeterminate 
C)  2.60; Low risk 
D)  2.60; Indeterminate 
A)  2.24; High risk 
B)  2.24; Indeterminate 
C)  2.60; Low risk 
D)  2.60; Indeterminate

Question 17

The Justice Department has been asked to review a merger request for a market with the following four firms.
$$\begin{array} { c r } 
\text { Fim } & \text { Assets } \
\text { A } & \$ 10 \text { million } \
B & 20 \text { million } \
\text { C } & 100 \text { million } \
\text { D } & 30 \text { million }
\end{array}$$
If Firm C acquires Firm D, what is the HHI for the new market?

Accepted Answer

A)  100 
B)  160 
C)  6,796.875 
D)  17,400.00 
A)  100 
B)  160 
C)  6,796.875 
D)  17,400.00

Question 18

Suppose a linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the debt ratio and the profit margin. Based on past bankruptcy experience, the linear probability model is estimated as:
PDi = 0.15 (debt ratio) + 0.1 (profit margin)
A firm you are thinking of lending to has a debt ratio of 57 percent and a profit margin of 7.15 percent. Calculate the firm's expected probability of default, or bankruptcy.

Accepted Answer

A)  9.27 percent 
B)  8.49 percent 
C)  7.83 percent 
D)  6.91 percent 
A)  9.27 percent 
B)  8.49 percent 
C)  7.83 percent 
D)  6.91 percent

Question 19

A linear probability model you have developed finds there are two factors influencing the past bankruptcy behavior of firms: the equity multiplier and the total asset turnover ratio. Based on past bankruptcy experience, the linear probability model is estimated as:
PDi = 0.02 (equity multiplier) + 0.01 (total asset turnover)
A firm you are thinking of lending to has an equity multiplier of 3.2 times and a total asset turnover ratio of 1.95. Calculate the firm's expected probability of default, or bankruptcy.

Accepted Answer

A)  7.06 percent 
B)  7.92 percent 
C)  8.35 percent 
D)  9.12 percent 
A)  7.06 percent 
B)  7.92 percent 
C)  8.35 percent 
D)  9.12 percent

Question 20

Which of the following is a combination of firms that sell different, but somewhat related, products?

Accepted Answer

A)  Vertical merger 
B)  Conglomerate merger 
C)  Product extension merger 
D)  Market extension merger 
A)  Vertical merger 
B)  Conglomerate merger 
C)  Product extension merger 
D)  Market extension merger

If Walt Disney and American Airlines merged, it would be an example of a:

If Whole Foods grocery store buys Whole Wheat Bread, this would be an example of a:

The Justice Department has been asked to review a merger request for a market with the following four firms. Fim Assets A \ 10 million B 20 million C 100 million D 30 million If Firm A acquires Firm D, what is the HHI for the new market?

The main reason for a vertical merger is:

An agreement in which creditors voluntarily reduce their claims on the firm, receiving only a partial payment for their claims, by reducing the principal amount or the interest rate on the debt or by taking equity in exchange for debt is a ________.

Cost savings not directly due to economies of scope or economies of scale are referred to as:

Which of the following involves a firm and its creditors agreeing to a private reorganization outside the formal bankruptcy process?

Which of the following is a formal bankruptcy proceeding involving the reorganization of the corporation with some provision for repayment to the firm's creditors?

Which of these is the person who liquidates the firm's assets through a private sale or public auction and then distributes any proceeds from the sale to the firms' creditors and stockholders?

The Justice Department has been asked to review a merger request for a market with the following four firms. Fim Assets A \ 10 million B 20 million C 100 million D 30 million If Firm C acquires Firm D, what is the HHI for the new market?

Which of the following is a combination of firms that sell different, but somewhat related, products?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Filters

Exam 20: Mergers and Acquisitions and Financial Distress

If Walt Disney and American Airlines merged, it would be an example of a:

If Whole Foods grocery store buys Whole Wheat Bread, this would be an example of a:

The Justice Department has been asked to review a merger request for a market with the following four firms. Fim Assets A \ 10 million B 20 million C 100 million D 30 million If Firm A acquires Firm D, what is the HHI for the new market?

The main reason for a vertical merger is:

An agreement in which creditors voluntarily reduce their claims on the firm, receiving only a partial payment for their claims, by reducing the principal amount or the interest rate on the debt or by taking equity in exchange for debt is a ________.

Cost savings not directly due to economies of scope or economies of scale are referred to as:

Which of the following involves a firm and its creditors agreeing to a private reorganization outside the formal bankruptcy process?

Which of the following is a formal bankruptcy proceeding involving the reorganization of the corporation with some provision for repayment to the firm's creditors?

Which of these is the person who liquidates the firm's assets through a private sale or public auction and then distributes any proceeds from the sale to the firms' creditors and stockholders?

The Justice Department has been asked to review a merger request for a market with the following four firms. Fim Assets A \ 10 million B 20 million C 100 million D 30 million If Firm C acquires Firm D, what is the HHI for the new market?

Which of the following is a combination of firms that sell different, but somewhat related, products?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Filters