Question 1

One of the reasons why proxy fights are rarely successful is that:

Accepted Answer

A) management is always viewed as performing their jobs well. 
B) management can use corporate resources to defend against the fight. 
C) mergers are a cheaper form of changing management. 
D) shareholders are unconcerned with corporate management. 
A) management is always viewed as performing their jobs well. 
B) management can use corporate resources to defend against the fight. 
C) mergers are a cheaper form of changing management. 
D) shareholders are unconcerned with corporate management.

Question 2

Why are firms with free cash flow attractive acquisition candidates?

Accepted Answer

In the case of acquisitions, firms are t

Question 3

Large-scale efforts to make a firm less appealing in the midst of a potential merger are known as:

Accepted Answer

A) Proxy fights. 
B) Leveraged buyouts. 
C) Shark repellents. 
D) Poison pills. 
A) Proxy fights. 
B) Leveraged buyouts. 
C) Shark repellents. 
D) Poison pills.

Question 4

Proxy fights are conducted in order to achieve a goal of:

Accepted Answer

A) changing the corporate charter. 
B) bringing about economies of scale. 
C) replacing the current board and management team. 
D) having a public tender offer. 
A) changing the corporate charter. 
B) bringing about economies of scale. 
C) replacing the current board and management team. 
D) having a public tender offer.

Question 5

In a merger the acquiring firm buys only the assets of the target firm.

Accepted Answer

A) True 
 B)False

Question 6

Changes in corporate charter designed to deter an unwelcome takeover is best defined as:

Accepted Answer

A) Leveraged Buyout. 
B) Poison Pill. 
C) Shark Repellent. 
D) Proxy Contest. 
A) Leveraged Buyout. 
B) Poison Pill. 
C) Shark Repellent. 
D) Proxy Contest.

Question 7

In the case of a merger that is stock financed, the assumed merger cost may be incorrect if the:

Accepted Answer

A) value of the acquired firm's shares changes after the merger announcement. 
B) value of the acquiring firm's shares changes after the merger announcement. 
C) long-term interest rates increase. 
D) merger is either horizontal or vertical. 
A) value of the acquired firm's shares changes after the merger announcement. 
B) value of the acquiring firm's shares changes after the merger announcement. 
C) long-term interest rates increase. 
D) merger is either horizontal or vertical.

Question 8

When a firm's management takes the firm private with the aid of substantial debt it is known as a(n):

Accepted Answer

A) Tender offer. 
B) Greenmail offer. 
C) MBO. 
D) Hostile takeover. 
A) Tender offer. 
B) Greenmail offer. 
C) MBO. 
D) Hostile takeover.

Question 9

What are some of the motivations for leveraged buyouts?

Accepted Answer

In a leveraged buyout or management buyo

Question 10

Which of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

Accepted Answer

A) There is no cash outflow 
B) It mitigates the effects of overvaluation of the target firm 
C) It mitigates the effects of undervaluation of the target firm 
D) It avoids dilution of shares 
A) There is no cash outflow 
B) It mitigates the effects of overvaluation of the target firm 
C) It mitigates the effects of undervaluation of the target firm 
D) It avoids dilution of shares

Question 11

World Enterprises is determined to report earnings per share of $2.67.It therefore acquires the Axle Company:
 $\begin{array}{|l|r|r|r|}\hline&\text { World Enterprises } &\text { Axle Company }& \text { Merged Firm }\
\hline \text { Earnings per share } & \$ 2.00 & \$ 2.50 & \$ 2.67 \
\hline \text { Price per share } & \$ 40.00 & \$ 25.00 & \
\hline \text { Price-earningsratio } & 20 & 10 & \
\hline \text { Number of shares } & 100,000 & 200,000 & \
\hline \text { Total earnings } & \$ 200,000 & \$ 500,000 & \
\hline \text { Total market value } & \$ 4,000,000 & \$ 5,000,000 &\\hline
\end{array}$ There are no gains from the merger.In exchange for Axle shares, World Enterprises issues just enough of its own shares to ensure its $2.67 earnings per share objective.
a.Complete the above table for the merged firm.
b.How many shares of World Enterprises are exchanged for each share of Axle?
c.What is the cost of the merger to World Enterprises?
d.What is the change in the total market value of those World Enterprises shares that were outstanding before the merger?

Accepted Answer

The answer of World Enterprises is determined to report earnings...

Question 12

Which of the following is not a method of changing the management of a firm?

Accepted Answer

A) Proxy contest 
B) Merger and acquisition 
C) LBO 
D) MBO 
A) Proxy contest 
B) Merger and acquisition 
C) LBO 
D) MBO

Question 13

Companies spin off the business by selling part of the assets to another company.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not correct concerning a proposed merger of firms?

Accepted Answer

A) The acquired firm will cease to exist. 
B) Shareholders of the acquired firm may receive securities in the acquiring firm. 
C) Mergers are sometimes combinations of equals. 
D) Shareholder approval to merge is not required. 
A) The acquired firm will cease to exist. 
B) Shareholders of the acquired firm may receive securities in the acquiring firm. 
C) Mergers are sometimes combinations of equals. 
D) Shareholder approval to merge is not required.

Question 15

What does empirical evidence suggest about the distribution of gains from mergers?

Accepted Answer

A) Shareholders of the acquired firm gain the most. 
B) Shareholders of the acquiring firm gain the most. 
C) Neither group of shareholders is likely to gain. 
D) Both groups of shareholders gain equally. 
A) Shareholders of the acquired firm gain the most. 
B) Shareholders of the acquiring firm gain the most. 
C) Neither group of shareholders is likely to gain. 
D) Both groups of shareholders gain equally.

Question 16

Who is typically the primary beneficiary(ies) in a merger?

Accepted Answer

While there are certainly exceptions to

Question 17

The most likely interpretation of headlines that read, "ABC Corp.adopts shark repellent" is that:

Accepted Answer

A) ABC wants to increase the difficulty of a takeover. 
B) ABC has made a tender offer for the shares of another firm. 
C) ABC will only merge with small-sized partners. 
D) ABC Corp.desires to reduce the costs of being acquired. 
A) ABC wants to increase the difficulty of a takeover. 
B) ABC has made a tender offer for the shares of another firm. 
C) ABC will only merge with small-sized partners. 
D) ABC Corp.desires to reduce the costs of being acquired.

Question 18

The observation that cash-rich firms often use the funds to diversify rather than increase dividends indicates that:

Accepted Answer

A) diversification is too costly for individuals. 
B) growth is often valued for the sake of growth alone. 
C) diversification is synergistic. 
D) dividend-pricing models are of questionable value. 
A) diversification is too costly for individuals. 
B) growth is often valued for the sake of growth alone. 
C) diversification is synergistic. 
D) dividend-pricing models are of questionable value.

Question 19

In general, shareholders of the target firm benefit from takeovers.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is correct concerning a spin-off?

Accepted Answer

A) A division of a firm is reconstituted as a new firm 
B) An unprofitable division is divested 
C) A division of a firm is bought by its managers 
D) The spin-off generates no free cash flow 
A) A division of a firm is reconstituted as a new firm 
B) An unprofitable division is divested 
C) A division of a firm is bought by its managers 
D) The spin-off generates no free cash flow

Exam 23: Mergers, Acquisitions, and Corporate Control

One of the reasons why proxy fights are rarely successful is that:

Why are firms with free cash flow attractive acquisition candidates?

Large-scale efforts to make a firm less appealing in the midst of a potential merger are known as:

Proxy fights are conducted in order to achieve a goal of:

In a merger the acquiring firm buys only the assets of the target firm.

Changes in corporate charter designed to deter an unwelcome takeover is best defined as:

In the case of a merger that is stock financed, the assumed merger cost may be incorrect if the:

When a firm's management takes the firm private with the aid of substantial debt it is known as a(n):

What are some of the motivations for leveraged buyouts?

Which of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

Which of the following is not a method of changing the management of a firm?

Companies spin off the business by selling part of the assets to another company.

Which of the following is not correct concerning a proposed merger of firms?

What does empirical evidence suggest about the distribution of gains from mergers?

Who is typically the primary beneficiary(ies) in a merger?

The most likely interpretation of headlines that read, "ABC Corp.adopts shark repellent" is that:

The observation that cash-rich firms often use the funds to diversify rather than increase dividends indicates that:

In general, shareholders of the target firm benefit from takeovers.

Which of the following is correct concerning a spin-off?

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