Question 1

Which of the following about an asset purchase merger transaction is/are correct?

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 2

In the method of accounting for mergers, the total value paid or exchanged for the acquired firm's assets is recorded on the acquiring company's books.

Accepted Answer

A) purchase 
B) goodwill 
C) pooling of interests 
D) stockholder's equity 
A) purchase 
B) goodwill 
C) pooling of interests 
D) stockholder's equity

Question 3

Employee Stock Ownership Plans (ESOPs) are useful instruments for financing leveraged buyouts because in an ESOP transaction

Accepted Answer

A) employees have a greater voice in the final decision 
B) lenders can offer below market interest rates 
C) ESOPs can be used only when employees take over management functions 
D) ESOPs attract greater external equity investments 
A) employees have a greater voice in the final decision 
B) lenders can offer below market interest rates 
C) ESOPs can be used only when employees take over management functions 
D) ESOPs attract greater external equity investments

Question 4

In a(n) common stock in a division or subsidiary is distributed to shareholders of the parent company on a pro rata basis.

Accepted Answer

A) spin-off 
B) reverse LBO 
C) equity carve-out 
D) tender offer 
A) spin-off 
B) reverse LBO 
C) equity carve-out 
D) tender offer

Question 5

Explain a form of business combination called a holding company and how the combination is achieved.

Accepted Answer

A holding company is one in which the ac

Question 6

A plan of reorganization must be all of the following EXCEPT:

Accepted Answer

A) feasible 
B) fair 
C) a plan that allows the firm a chance to reestablish successful business operations 
D) a plan whereby the creditors that are due the most money are paid first. 
A) feasible 
B) fair 
C) a plan that allows the firm a chance to reestablish successful business operations 
D) a plan whereby the creditors that are due the most money are paid first.

Question 7

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

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 8

Buggy Whip Industries is being liquidated under Chapter 7 of the bankruptcy code.When it filed for bankruptcy, its balance sheet was a follows:

**Mortgage bonds are secured by land and buildings
Assume that the liquidation is a voluntary petition, that no unpaid contributions to employee benefit plans exist, and that no customer layaway deposits are involved.The proceeds from the liquidation of the company's assets are as follows:
 
Bankruptcy administration charges are $2,500,000.Determine the amount that the mortgage bondholders will receive in this liquidation.

Accepted Answer

A) $5,000,000 
B) $6,500,000 
C) $8,000,000 
D) $10,500,000 
A) $5,000,000 
B) $6,500,000 
C) $8,000,000 
D) $10,500,000

Question 9

A combination of two or more companies that have a buyer-seller relationship with each other is known as a

Accepted Answer

A) conglomerate merger 
B) vertical merger 
C) horizontal merger 
D) takeover 
A) conglomerate merger 
B) vertical merger 
C) horizontal merger 
D) takeover

Question 10

A new takeover defense is boardmail.How does it work?

Accepted Answer

Some institutional investors have develo

Question 11

equals the proceeds that would be received from the sale of the firm's assets minus its liabilities.

Accepted Answer

A) Market value 
B) Equity value 
C) Going-concern value 
D) Liquidation value 
A) Market value 
B) Equity value 
C) Going-concern value 
D) Liquidation value

Question 12

How does a joint venture differ from a holding company?

Accepted Answer

A holding company occurs when an acquiri

Question 13

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:
 
If Endevco is not willing to incur an initial dilution in its EPS, and if Endevco also feels that it will have to offer Geothermal shareholders a minimum of 20% over Geothermal's current market price, what is the maximum price per share that Endevco will have to 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 14

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 15

The acquisition of a company in which the buyer borrows a large amount of the purchase price, using the purchased assets as collateral for a large portion of the borrowings, is known as a .

Accepted Answer

A) pooling of interests 
B) leveraged buyout 
C) conglomerate merger 
D) tender offer 
A) pooling of interests 
B) leveraged buyout 
C) conglomerate merger 
D) tender offer

Question 16

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 17

Calculate the post-merger earnings per share if the exchange ratio is 0.4 shares of Essex for each share of Twinsburg.(Assume total post-merger earnings are $43,740,000.)

Accepted Answer

A) $8.10 
B) $7.33 
C) $7.29 
D) $7.42 
A) $8.10 
B) $7.33 
C) $7.29 
D) $7.42

Question 18

Essex Industries is considering the acquisition of the Twinsburg Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Calculate answers to nearest 0.001.
  
-Calculate the exchange ratio if Essex offers the Twinsburg stockholders a 20% premium over Twinsburg's current market price.

Accepted Answer

A) 0.375 
B) 2.22 
C) 0.45 
D) 0.288 
A) 0.375 
B) 2.22 
C) 0.45 
D) 0.288

Question 19

An antitakeover measure that is employed after the takeover has been initiated is:

Accepted Answer

A) Golden parachute 
B) Staggered board 
C) White knight 
D) Poison put 
A) Golden parachute 
B) Staggered board 
C) White knight 
D) Poison put

Question 20

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):
 
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

Exam 23: Corporate Restructuring

Which of the following about an asset purchase merger transaction is/are correct?

In the method of accounting for mergers, the total value paid or exchanged for the acquired firm's assets is recorded on the acquiring company's books.

Employee Stock Ownership Plans (ESOPs) are useful instruments for financing leveraged buyouts because in an ESOP transaction

In a(n) common stock in a division or subsidiary is distributed to shareholders of the parent company on a pro rata basis.

Explain a form of business combination called a holding company and how the combination is achieved.

A plan of reorganization must be all of the following EXCEPT:

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

A combination of two or more companies that have a buyer-seller relationship with each other is known as a

A new takeover defense is boardmail.How does it work?

equals the proceeds that would be received from the sale of the firm's assets minus its liabilities.

How does a joint venture differ from a holding company?

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 .

The acquisition of a company in which the buyer borrows a large amount of the purchase price, using the purchased assets as collateral for a large portion of the borrowings, is known as a .

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

Calculate the post-merger earnings per share if the exchange ratio is 0.4 shares of Essex for each share of Twinsburg.(Assume total post-merger earnings are $43,740,000.)

An antitakeover measure that is employed after the takeover has been initiated is:

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

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

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