Question 1

All of the following are anti-takeover measures EXCEPT ____.

Accepted Answer

A)  black knight 
B)  staggered board 
C)  super major voting rules 
D)  golden parachute 
A)  black knight 
B)  staggered board 
C)  super major voting rules 
D)  golden parachute

Question 2

In a ____, the acquiring company effectively announces that it will pay a certain price above the current existing price for a merger candidate's shares.

Accepted Answer

A)  leveraged buyout 
B)  tender offer 
C)  equity carve-out 
D)  divestiture 
A)  leveraged buyout 
B)  tender offer 
C)  equity carve-out 
D)  divestiture

Question 3

Linpro Industries is considering the acquisition of Odetics Inc. in a stock-for-stock exchange. Assume no immediate synergistic benefits are expected. Selected financial data on the two companies are shown below: $$\begin{array} { l r r } 
& \text { Linpro } & \text { Odetics } \
\text { Sales (millions) } & \$ 480 & \$ 90 \
\text { Net income (millions) } & \$ 38 & \$ 10.4 \
\text { Common shares outstanding (millions) } & 10 & 2.1 \
\text { Earnings per share } & \$ 3.80 & \$ 4.95 \
\text { Common stock (price per share) } & \$ 45.60 & \$ 74.25
\end{array}$$ ? Calculate Linpro's postmerger EPS if the Odetics shareholders accept an offer of $90 a share in a stock-for-stock exchange.

Accepted Answer

A)  $4.38 
B)  $4.29 
C)  $3.42 
D)  $3.81 
A)  $4.38 
B)  $4.29 
C)  $3.42 
D)  $3.81

Question 4

An example of a passive institutional investor is a ____.

Accepted Answer

A)  pension fund 
B)  private equity investor 
C)  parent company 
D)  third-party administrator 
A)  pension fund 
B)  private equity investor 
C)  parent company 
D)  third-party administrator

Question 5

Sunlite is considering a merger with Velo Blind by offering the equivalent of $21 a share in a stock-for-stock transaction. Sunlite's current common stock price is $30 a share and Velo's is $17. Other financial data on the two firms is as follows: $$\begin{array} { l r r } 
& \text { Sunlite } & \text { Velo Blind } \
\text { Sales (millions) } & \$ 100 & \$ 20 \
\text { Net income (millions) } & \$ 10 & \$ 3 \
\text { No. of shares outstanding (millions) } & 8 & 1.2 \
\text { Earnings per share } & \$ 1.25 & \$ 2.50
\end{array}$$ ? Assuming no economies of scale or synergistic benefits, what will be the post-merger earnings per share?

Accepted Answer

A)  $1.47 
B)  $1.41 
C)  $1.50 
D)  $1.25 
A)  $1.47 
B)  $1.41 
C)  $1.50 
D)  $1.25

Question 6

Osicom Tech is acquiring Rexon's outstanding common stock for $32 million. Before acquisition financial information on these two firms is given as follows (in $ millions): $$\begin{array} { l r r } 
& \text { Osicom Tech } & \text { Rexon } \
\text { Total assets } & \$ 120 & \$ 50 \
\text { Liabilities } & 60 & 25 \
\text { Stockholders' equity } & 60 & 25
\end{array}$$ ? What are the total assets and stockholders' equity (in $ millions) if the purchase method is used as the accounting method for this merger?

Accepted Answer

A)  $170; $85 
B)  $177; $92 
C)  $170; $92 
D)  $85; $92 
A)  $170; $85 
B)  $177; $92 
C)  $170; $92 
D)  $85; $92

Question 7

In response to the merger and acquisitions boom of the late 1980s, many companies adopted various measures designed to discourage unfriendly takeover attempts. One of these antitakeover measures, sometimes referred to as shark repellents, is called a ​staggered board.​ Describe how this works.

Accepted Answer

The implementation of a staggered board

Question 8

A form of business combination in which two (unaffiliated) companies contribute financial and/or physical assets, as well as personnel, to a new company to engage in some economic activity is known as a ____.

Accepted Answer

A)  joint venture 
B)  conglomerate merger 
C)  merger 
D)  consolidation 
A)  joint venture 
B)  conglomerate merger 
C)  merger 
D)  consolidation

Question 9

Which of the following would be considered a reason for corporate restructuring? 
I. Availability of credit
II. Low cost of credit

Accepted Answer

A)  Only statement I is correct. 
B)  Only statement II is correct. 
C)  Both statements I and II are correct. 
D)  Neither statement I nor II is correct. 
A)  Only statement I is correct. 
B)  Only statement II is correct. 
C)  Both statements I and II are correct. 
D)  Neither statement I nor II is correct.

Question 10

Which of the following terms are NOT associated with mergers and acquisitions?

Accepted Answer

A)  White knight 
B)  Tender offers 
C)  Greenmail 
D)  Declaration of bankruptcy 
A)  White knight 
B)  Tender offers 
C)  Greenmail 
D)  Declaration of bankruptcy

Question 11

A reorganization plan is reviewed by the ____ for fairness and feasibility.

Accepted Answer

A)  bankruptcy court 
B)  Securities and Exchange Commission 
C)  Federal Trade Commission 
D)  bankruptcy court and the SEC 
A)  bankruptcy court 
B)  Securities and Exchange Commission 
C)  Federal Trade Commission 
D)  bankruptcy court and the SEC

Question 12

Koala Technologies is considering the acquisition of Laser Industries in a stock-for-stock exchange. Selected financial data for the two companies is shown below. An immediate synergistic earnings benefit of $2.5 million is expected in this merger. $$\begin{array} { l r r } 
& \text { Koala } & \text { Laser } \
\text { Sales (millions) } & \$ 90 & \$ 10 \
\text { Net income (millions) } & \$ 9.4 & \$ 1.2 \
\text { Common shares outstanding (millions) } & 4.0 & 0.8 \
\text { Earnings per share } & \$ 2.35 & \$ 1.50 \
\text { Common stock (price per share) } & \$ 35.00 & \$ 27.00
\end{array}$$ ? Calculate the postmerger EPS if the Laser shareholders accept an offer of $33.25 a share in a stock-for-stock exchange.

Accepted Answer

A)  $2.21 
B)  $2.25 
C)  $2.75 
D)  $2.23 
A)  $2.21 
B)  $2.25 
C)  $2.75 
D)  $2.23

Question 13

In a ____ form of business combination, a parent-subsidiary relationship exists between the acquiring and acquired companies.

Accepted Answer

A)  leveraged buyout 
B)  holding company 
C)  consolidation 
D)  leveraged buyout or consolidation 
A)  leveraged buyout 
B)  holding company 
C)  consolidation 
D)  leveraged buyout or consolidation

Question 14

Endevco is considering the acquisition of Geothermal Resources in a stock-for-stock exchange. Assume no immediate synergistic benefits are expected. Selected financial data on the two companies are shown below: $$\begin{array} { l r r } 
& \text { Endevco } & \text { Geothermal } \
\text { Sales (millions) } & \$ 720 & \$ 140 \
\text { Net income (millions) } & \$ 58 & \$ 16 \
\text { Common shares outstanding (millions) } & 10 & 3 \
\text { Earnings per share } & \$ 5.80 & \$ 5.33 \
\text { Common stock (price per share) } & \$ 70.00 & \$ 48
\end{array}$$ ? If Endevco is not willing to incur an initial dilution in its EPS, and if Endevco also feels that it must offer Geothermal shareholders a minimum of 20% over Geothermal's current market price, what is the maximum price per share that Endevco must pay for Geothermal's stock?

Accepted Answer

A)  $57.60 
B)  $64.33 
C)  $52.23 
D)  $60.00 
A)  $57.60 
B)  $64.33 
C)  $52.23 
D)  $60.00

Question 15

Which of the following about an asset purchase merger transaction is (are) correct? 
I. Only the assets are purchased.
II. The buying firm receives 100% of the assets and incurs only 50% of the liabilities.

Accepted Answer

A)  Only statement I is correct. 
B)  Only statement II is correct. 
C)  Both statements I and II are correct. 
D)  Neither statement I nor II is correct. 
A)  Only statement I is correct. 
B)  Only statement II is correct. 
C)  Both statements I and II are correct. 
D)  Neither statement I nor II is correct.

Question 16

Morgan Foods is considering the acquisition of Old Spaghetti Warehouse Inc. in a stock-for-stock exchange. Selected financial data for the two companies is shown below. An immediate synergistic earnings benefit of $1.5 million is expected in this merger, due to cost savings. $$\begin{array} { l r r } 
& \text { Morgan } & \text { Old Spaghetti } \
\text { Sales (millions) } & \$ 360 & \$ 80 \
\text { Net income (millions) } & \$ 30 & \$ 8 \
\text { Common stock outstanding (millions) } & 10 & 2 \
\text { Earnings per share } & \$ 3.00 & \$ 4.00 \
\text { Common stock (price per share) } & \$ 36.00 & \$ 44.00
\end{array}$$ ? Calculate the postmerger EPS if the Old Spaghetti shareholders accept an offer of $54 per share in a stock-for-stock exchange.

Accepted Answer

A)  $3.04 
B)  $2.92 
C)  $3.29 
D)  $3.17 
A)  $3.04 
B)  $2.92 
C)  $3.29 
D)  $3.17

Question 17

The basic methods used in combining financial accounts in a merger include all except which of the following?

Accepted Answer

A)  Goodwill consolidation method 
B)  Purchase method 
C)  Pooling of interests method 
D)  Book value method 
A)  Goodwill consolidation method 
B)  Purchase method 
C)  Pooling of interests method 
D)  Book value method

Question 18

Explain the motivation for a company to divest through a spin-off or equity carve-out.

Accepted Answer

Spinoffs or equity carve-outs may be mot

Question 19

A bond that contains a put option that can be exercised only if an unfriendly takeover occurs is an example of a ____.

Accepted Answer

A)  pacman defense 
B)  liability restructuring 
C)  poison pill 
D)  standstill option 
A)  pacman defense 
B)  liability restructuring 
C)  poison pill 
D)  standstill option

Question 20

Forms of business combinations include ____.

Accepted Answer

A)  mergers 
B)  consolidations 
C)  holding companies and consolidations 
D)  mergers, consolidations, and holding companies 
A)  mergers 
B)  consolidations 
C)  holding companies and consolidations 
D)  mergers, consolidations, and holding companies

Exam 27: Corporate Restructuring

All of the following are anti-takeover measures EXCEPT ____.

In a ____, the acquiring company effectively announces that it will pay a certain price above the current existing price for a merger candidate's shares.

An example of a passive institutional investor is a ____.

In response to the merger and acquisitions boom of the late 1980s, many companies adopted various measures designed to discourage unfriendly takeover attempts. One of these antitakeover measures, sometimes referred to as shark repellents, is called a ​staggered board.​ Describe how this works.

A form of business combination in which two (unaffiliated) companies contribute financial and/or physical assets, as well as personnel, to a new company to engage in some economic activity is known as a ____.

Which of the following would be considered a reason for corporate restructuring? I. Availability of credit II. Low cost of credit

Which of the following terms are NOT associated with mergers and acquisitions?

A reorganization plan is reviewed by the ____ for fairness and feasibility.

In a ____ form of business combination, a parent-subsidiary relationship exists between the acquiring and acquired companies.

Which of the following about an asset purchase merger transaction is (are) correct? I. Only the assets are purchased. II. The buying firm receives 100% of the assets and incurs only 50% of the liabilities.

The basic methods used in combining financial accounts in a merger include all except which of the following?

Explain the motivation for a company to divest through a spin-off or equity carve-out.

A bond that contains a put option that can be exercised only if an unfriendly takeover occurs is an example of a ____.

Forms of business combinations include ____.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Filters

In response to the merger and acquisitions boom of the late 1980s, many companies adopted various measures designed to discourage unfriendly takeover attempts. One of these antitakeover measures, sometimes referred to as shark repellents, is called a staggered board. Describe how this works.