Question 1

Economies of vertical integration are one possible source of synergy in mergers.

Accepted Answer

A) True 
 B)False  True

Question 2

A merger adds value by creating synergies.Which of the following is not a possible source of synergy?

Accepted Answer

A) Economies of scale 
B) Economies of vertical integration 
C) Combining complementary resources 
D) Diversification 
A) Economies of scale 
B) Economies of vertical integration 
C) Combining complementary resources 
D) Diversification D

Question 3

Which of the following statements seems most correct about a firm that has made a cash tender offer for two million shares of ABC Corp.at a price of $20, which is $6 higher than ABC's current value?

Accepted Answer

A) The economic gain of the merger exceeds $40 million. 
B) The economic gain of the merger exceeds $28 million. 
C) The economic gain of the merger exceeds $12 million. 
D) The economic gain of the merger would be zero after accounting for merger cost. 
A) The economic gain of the merger exceeds $40 million. 
B) The economic gain of the merger exceeds $28 million. 
C) The economic gain of the merger exceeds $12 million. 
D) The economic gain of the merger would be zero after accounting for merger cost. C

Question 4

Which of the following motives for mergers make economic sense?

Accepted Answer

A) To achieve economies of scale 
B) To reduce risk by diversification 
C) Merging to redeploy cash 
D) To increase earnings per share 
A) To achieve economies of scale 
B) To reduce risk by diversification 
C) Merging to redeploy cash 
D) To increase earnings per share

Question 5

A tender offer is one in which the firm's:

Accepted Answer

A) management offers to sell the company to an acquirer. 
B) board of directors offers to sell the company to the public. 
C) shareholders are propositioned to sell their shares to outsiders. 
D) management offers to buy all outstanding shares of the corporation. 
A) management offers to sell the company to an acquirer. 
B) board of directors offers to sell the company to the public. 
C) shareholders are propositioned to sell their shares to outsiders. 
D) management offers to buy all outstanding shares of the corporation.

Question 6

An acquiring company is considering a takeover of a target company.The acquiring company has 15 million shares outstanding with $30 per share.The target company has 8 million shares outstanding which sell for $24 per share.If the acquiring company estimates that merger gains will be $16 million, determine what the highest price will be paid per share for the target.

Accepted Answer

A) $24 
B) $26 
C) $28 
D) $30 
A) $24 
B) $26 
C) $28 
D) $30

Question 7

If the shareholders of an acquired firm capture all of the merger's gain, then the:

Accepted Answer

A) cost of the merger is zero. 
B) NPV of the merger is zero. 
C) EPS will increase. 
D) acquiring firm retains all merger benefits. 
A) cost of the merger is zero. 
B) NPV of the merger is zero. 
C) EPS will increase. 
D) acquiring firm retains all merger benefits.

Question 8

Firms A and B intend to merge and Firm A has calculated the NPV of the merger to be $2 million after paying $8 million for Firm
B.If Firm A had a pre-merger value of $10 million and Firm B had a pre-merger value of $6 million, calculate the value of the merged entity, as well as the cost of the merger.

Accepted Answer

PVAB = PVA + PVB + gain
= $10

Question 9

Diversification is often a poor motive for mergers because:

Accepted Answer

A) vertical integration is rarely successful. 
B) investors can diversify on their own account. 
C) it does not produce economies of scale. 
D) the increase in taxes overcomes gains in earnings. 
A) vertical integration is rarely successful. 
B) investors can diversify on their own account. 
C) it does not produce economies of scale. 
D) the increase in taxes overcomes gains in earnings.

Question 10

The proliferation of junk bonds in the 1980s greatly increased the feasibility of LBOs.

Accepted Answer

A) True 
 B)False

Question 11

If two merged firms are shown to have a higher combined market value than the sum of the individual market values, then:

Accepted Answer

A) economic gains are said to have taken place. 
B) the firms were previously underpriced. 
C) the merger provides diversification to investors. 
D) there is no cost involved in the merger. 
A) economic gains are said to have taken place. 
B) the firms were previously underpriced. 
C) the merger provides diversification to investors. 
D) there is no cost involved in the merger.

Question 12

One common explanation for the success of MBOs is the incentive effect of leverage.Explain.

Accepted Answer

In an MBO the management becomes the equ

Question 13

Which of the following might you recommend to a firm with excessive free cash flow?

Accepted Answer

A) Acquire a firm to diversify 
B) Acquire a firm to bootstrap earnings 
C) A leveraged buyout 
D) A repurchase of shares 
A) Acquire a firm to diversify 
B) Acquire a firm to bootstrap earnings 
C) A leveraged buyout 
D) A repurchase of shares

Question 14

A public offer to purchase the shares of existing shareholders in order to take the firm over is called a:

Accepted Answer

A) Tender offer. 
B) Greenmail attempt. 
C) Spin-off. 
D) Divestiture. 
A) Tender offer. 
B) Greenmail attempt. 
C) Spin-off. 
D) Divestiture.

Question 15

In mergers financed by cash, the merger cost is not affected by the size of the merger gain.

Accepted Answer

A) True 
 B)False

Question 16

A tender offer is an agreement between the management and shareholders of a firm to buy back its own shares.

Accepted Answer

A) True 
 B)False

Question 17

In merger terminology, a white knight is:

Accepted Answer

A) any suitor willing to bid more than the current share price for a firm. 
B) the successful bidder in a merger process. 
C) a suitor who acquires with cash rather than with stock. 
D) a friendly acquirer that will out-bid a hostile acquirer. 
A) any suitor willing to bid more than the current share price for a firm. 
B) the successful bidder in a merger process. 
C) a suitor who acquires with cash rather than with stock. 
D) a friendly acquirer that will out-bid a hostile acquirer.

Question 18

The cost of a merger equals the:

Accepted Answer

A) cash paid for the target firm. 
B) increase in total earnings less the price paid. 
C) premium paid over the target's value as a separate entity. 
D) sum of cash and stock paid for the target firm. 
A) cash paid for the target firm. 
B) increase in total earnings less the price paid. 
C) premium paid over the target's value as a separate entity. 
D) sum of cash and stock paid for the target firm.

Question 19

Other things equal, which of the following groups of stakeholders should expect to lose value as a result of an LBO?

Accepted Answer

A) Selling shareholders 
B) Buying shareholders 
C) Bondholders 
D) Investment bankers 
A) Selling shareholders 
B) Buying shareholders 
C) Bondholders 
D) Investment bankers

Question 20

An economic gain is derived from mergers when two firms are worth more combined than separate.

Accepted Answer

A) True 
 B)False

Exam 23: Mergers, Acquisitions, and Corporate Control

Economies of vertical integration are one possible source of synergy in mergers.

A merger adds value by creating synergies.Which of the following is not a possible source of synergy?

Which of the following statements seems most correct about a firm that has made a cash tender offer for two million shares of ABC Corp.at a price of $20, which is $6 higher than ABC's current value?

Which of the following motives for mergers make economic sense?

A tender offer is one in which the firm's:

If the shareholders of an acquired firm capture all of the merger's gain, then the:

Diversification is often a poor motive for mergers because:

The proliferation of junk bonds in the 1980s greatly increased the feasibility of LBOs.

If two merged firms are shown to have a higher combined market value than the sum of the individual market values, then:

One common explanation for the success of MBOs is the incentive effect of leverage.Explain.

Which of the following might you recommend to a firm with excessive free cash flow?

A public offer to purchase the shares of existing shareholders in order to take the firm over is called a:

In mergers financed by cash, the merger cost is not affected by the size of the merger gain.

A tender offer is an agreement between the management and shareholders of a firm to buy back its own shares.

In merger terminology, a white knight is:

The cost of a merger equals the:

Other things equal, which of the following groups of stakeholders should expect to lose value as a result of an LBO?

An economic gain is derived from mergers when two firms are worth more combined than separate.

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

International Financial Management

Options

Risk Management

Filters