Question 1

Chapter 11 bankruptcy proceedings may be initiated by or more of its unsecured creditors who have aggregate claims of at least .

Accepted Answer

A) 2, $1,000 
B) 2, $5,000 
C) 3, $500 
D) 3, $5,000 
A) 2, $1,000 
B) 2, $5,000 
C) 3, $500 
D) 3, $5,000

Question 2

One reason for a company to spin-off a division is to:

Accepted Answer

A) consolidate expenses. 
B) remove an underperforming unit. 
C) create a better distribution unit. 
D) achieve synergy. 
A) consolidate expenses. 
B) remove an underperforming unit. 
C) create a better distribution unit. 
D) achieve synergy.

Question 3

Quarter Staff is being liquidated under Chapter 7 of the bankruptcy code.When it filed for bankruptcy, its balance sheet (in millions) was as follows:
 
The notes payable are an unsecured bank loan and the mortgage bond is secured by the land and building.The proceeds from the liquidation of the company's assets are as follows:
 
If the bankruptcy administration charges were $500,000, what dollar amount will the trade creditors (accounts payable) receive in the liquidation?

Accepted Answer

A) $1.65 million 
B) $3.71 million 
C) $4.60 million 
D) $2.55 million 
A) $1.65 million 
B) $3.71 million 
C) $4.60 million 
D) $2.55 million

Question 4

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:
 
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 5

Technical insolvency occurs when

Accepted Answer

A) the firm is unable to meet its current obligations as they come due, even though the value of its assets exceeds its liabilities 
B) the recorded value of the firm's assets is less than the recorded value of its liabilities 
C) the firm files a bankruptcy petition in accordance with the Federal bankruptcy laws 
D) the owners of the businesses lack experience 
A) the firm is unable to meet its current obligations as they come due, even though the value of its assets exceeds its liabilities 
B) the recorded value of the firm's assets is less than the recorded value of its liabilities 
C) the firm files a bankruptcy petition in accordance with the Federal bankruptcy laws 
D) the owners of the businesses lack experience

Question 6

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.
$$\begin{array} { l r r r } 
\text { Sales (millians) } & \frac { \text { Kala } } { \$ 90 } & \frac { \text { Leser } } { \$ 10 } \
\text { Net income (millions) } & \$ 9.4 & \$ 1.2 \
\text { Camman shares autstanding (millians) } & 4.0 & 0.8 \
\text { Earning per share } & \$ 2.35 & \$ 1.50 \
\text { Camnan stack (arice per share) } & \$ 35.00 & \$ 27 \text {.0] }
\end{array}$$
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 7

Explain the difference between a stock purchase and an asset purchase in a merger transaction.Which is preferred and why?

Accepted Answer

In a stock purchase the acquiring compan

Question 8

The major methods typically used to value merger candidates include all the following except

Accepted Answer

A) comparative price-earnings ratio method 
B) adjusted book value method 
C) discounted cash flow method 
D) bottom line comparison method 
A) comparative price-earnings ratio method 
B) adjusted book value method 
C) discounted cash flow method 
D) bottom line comparison method

Question 9

A combination in which all of the combining companies are dissolved and a new firm is formed is known as a? .

Accepted Answer

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

Question 10

After a merger with Velo Blind, Sunlite's earnings per share are $1.50.If Sunlite had a P/E ratio of 14 times before the merger and a price of $28 a share after the merger, what is Sunlite's post-merger P/E?

Accepted Answer

A) 16.8 
B) 14.3 
C) 20.2 
D) 18.7 
A) 16.8 
B) 14.3 
C) 20.2 
D) 18.7

Question 11

A(n) is a situation in which a failing business is permitted to lengthen the amount of time it has to meet its obligations with creditors.

Accepted Answer

A) assignment 
B) composition 
C) extension 
D) insolvency 
A) assignment 
B) composition 
C) extension 
D) insolvency

Question 12

When the net income of the combined companies after merger exceeds the sum of the net incomes prior to the merger, is said to exist.

Accepted Answer

A) goodwill 
B) synergy 
C) leverage 
D) greenmail 
A) goodwill 
B) synergy 
C) leverage 
D) greenmail

Question 13

The annual after-tax free cash flow from the acquisition by Pacific Care of Universal Health is projected to be $12 million.These flows are expected to continue for 20 years.No value is placed on cash flows beyond 20 years.If the appropriate risk-adjusted discount rate for the merged firm is 15 percent, what is the maximum amount Pacific Care should pay to acquire Universal Health?

Accepted Answer

A) $79,476,000 
B) $70,164,000 
C) $75,108,000 
D) cannot be determined from the information provided 
A) $79,476,000 
B) $70,164,000 
C) $75,108,000 
D) cannot be determined from the information provided

Question 14

Under Chapter(s) of the bankruptcy laws, a company continues to operate while it attempts to work out a reorganization plan.

Accepted Answer

A) 11 
B) 7 
C) 4 
D) 4 and 11 
A) 11 
B) 7 
C) 4 
D) 4 and 11

Question 15

equals the capitalized value of the company's operating earnings 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 16

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:
 
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 17

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

Question 18

What are some informal alternatives for salvaging a failing business?

Accepted Answer

1.The company can stretch its payables.

Question 19

In the method of combining financial accounts in a merger, the acquired company's assets are recorded on the acquiring company's books at their cost (net of depreciation) when originally acquired.

Accepted Answer

A) goodwill consolidation 
B) purchase 
C) pooling of interests 
D) EVA 
A) goodwill consolidation 
B) purchase 
C) pooling of interests 
D) EVA

Question 20

A firm is technically insolvent when: it is unable to meet it current obligations and:

Accepted Answer

A) the value of its assets exceeds the value of its liabilities. 
B) the value of its assets is less than the value of its liabilities. 
C) it files a bankruptcy petition. 
D) it merges with another firm. 
A) the value of its assets exceeds the value of its liabilities. 
B) the value of its assets is less than the value of its liabilities. 
C) it files a bankruptcy petition. 
D) it merges with another firm.

Exam 23: Corporate Restructuring

Chapter 11 bankruptcy proceedings may be initiated by or more of its unsecured creditors who have aggregate claims of at least .

One reason for a company to spin-off a division is to:

Technical insolvency occurs when

Explain the difference between a stock purchase and an asset purchase in a merger transaction.Which is preferred and why?

The major methods typically used to value merger candidates include all the following except

A combination in which all of the combining companies are dissolved and a new firm is formed is known as a? .

After a merger with Velo Blind, Sunlite's earnings per share are $1.50.If Sunlite had a P/E ratio of 14 times before the merger and a price of $28 a share after the merger, what is Sunlite's post-merger P/E?

A(n) is a situation in which a failing business is permitted to lengthen the amount of time it has to meet its obligations with creditors.

When the net income of the combined companies after merger exceeds the sum of the net incomes prior to the merger, is said to exist.

Under Chapter(s) of the bankruptcy laws, a company continues to operate while it attempts to work out a reorganization plan.

equals the capitalized value of the company's operating earnings minus its liabilities.

Forms of business combinations include:

What are some informal alternatives for salvaging a failing business?

In the method of combining financial accounts in a merger, the acquired company's assets are recorded on the acquiring company's books at their cost (net of depreciation) when originally acquired.

A firm is technically insolvent when: it is unable to meet it current obligations and:

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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