Question 1

What is the difference between a friendly takeover and a hostile takeover?

Accepted Answer

A friendly takeover is one in which the

Question 2

Merger activity is greater during economic expansions than during contractions and correlates with bull markets.

Accepted Answer

A) True 
 B)False

Question 3

Sol Company has announced plans to acquire Luna Corporation by swapping 0.55 shares of Sol stock for each share of Luna stock.After the announcement,Sol traded for $23 per share,and Luna traded for $11 per share.Assuming the takeover is successful,which of the following is the most appropriate merger-arbitrage strategy?

Accepted Answer

A)  Buy 100 shares of Sol, short sell 100 shares of Luna. 
B)  Buy 55 shares of Luna, short sell 100 shares of Sol. 
C)  Buy 100 shares of Luna, short sell 55 shares of Sol. 
D)  Buy 100 shares of Sol, short sell 55 shares of Luna. 
E)  Buy 55 shares of Sol, short sell 100 shares of Luna. 
A)  Buy 100 shares of Sol, short sell 100 shares of Luna. 
B)  Buy 55 shares of Luna, short sell 100 shares of Sol. 
C)  Buy 100 shares of Luna, short sell 55 shares of Sol. 
D)  Buy 100 shares of Sol, short sell 55 shares of Luna. 
E)  Buy 55 shares of Sol, short sell 100 shares of Luna.

Question 4

The acquiring corporation in a merger typically captures the value created by the merger.

Accepted Answer

A) True 
 B)False

Question 5

The freezeout tender offer has a significant disadvantage compared to a leveraged buyout because an acquiring corporation must make an all-cash offer.

Accepted Answer

A) True 
 B)False

Question 6

Tata Motors,a car manufacturer,has decided to enter into a merger with Axon Industries,the company that supplies Tata with many of its car parts.What type of synergies are the most likely reason behind this merger?

Accepted Answer

A)  economies of scale 
B)  vertical integration 
C)  expertise 
D)  monopoly gains 
E)  efficiency gains 
A)  economies of scale 
B)  vertical integration 
C)  expertise 
D)  monopoly gains 
E)  efficiency gains

Question 7

Use the information for the question(s) below.
Martin Manufacturing has earnings per share (EPS) of $3.00, 5 million shares outstanding, and a share price of $32. Martin is considering buying Luther Industries, which has earnings per share of $2.50, 2 million shares outstanding, and a share price of $20. Martin will pay for Luther by issuing new shares. There are no expected synergies from the transaction.
-What are synergies?

Accepted Answer

Synergies are value obtained f

Question 8

Once a tender offer is announced,the target's share price immediately rises by the amount of the acquisition premium.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is an example of a merger undertaken in order to achieve gains from vertical integration?

Accepted Answer

A)  A car manufacturer acquires a car parts supplier. 
B)  A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C)  A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D)  An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E)  A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system. 
A)  A car manufacturer acquires a car parts supplier. 
B)  A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C)  A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D)  An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E)  A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system.

Question 10

Timbuktu Technologies is an all-equity firm that is currently trading at $22 per share,with 50 million shares outstanding.You believe that by replacing management,you can increase the value of the firm by 50%.What is the maximum amount of value you can extract in a leveraged buyout for 50% of the outstanding shares?

Accepted Answer

A)  $550 million 
B)  $1.1 billion 
C)  $1.65 billion 
D)  $650 million 
E)  $225 million 
A)  $550 million 
B)  $1.1 billion 
C)  $1.65 billion 
D)  $650 million 
E)  $225 million

Question 11

Consider two firms,Bob Company and Cat Enterprises,both with earnings of $10 per share and 5 million shares outstanding.Cat is a mature company with few growth opportunities and a stock price of $25 per share.Bob is a new firm with much higher growth opportunities and a stock price of $40 per share.Assume Bob acquires Cat using its own stock and the takeover adds no value.What is the change in Bob's earnings per share as a result of the acquisition?

Accepted Answer

A)  $2.31 
B)  -$3.85 
C)  $10.00 
D)  $0 
E)  $5.00 
A)  $2.31 
B)  -$3.85 
C)  $10.00 
D)  $0 
E)  $5.00

Question 12

The merger of two companies in the same industry that make products required at different stages of the production cycle is called

Accepted Answer

A)  economies of scope. 
B)  vertical integration. 
C)  economies of scale. 
D)  horizontal integration. 
E)  efficiency gains. 
A)  economies of scope. 
B)  vertical integration. 
C)  economies of scale. 
D)  horizontal integration. 
E)  efficiency gains.

Question 13

An extremely lucrative severance package that is guaranteed to a firm's senior managers in the event that the firm is taken over and the managers are let go is called a

Accepted Answer

A)  golden parachute. 
B)  white knight. 
C)  poison pill. 
D)  classified board. 
E)  recapitalization. 
A)  golden parachute. 
B)  white knight. 
C)  poison pill. 
D)  classified board. 
E)  recapitalization.

Question 14

Due to strict regulations in Canada and the U.S.,the bidder in a merger will typically be able to acquire a target company for a price less than its current market value.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is an example of a merger undertaken in order to achieve gains from acquiring expertise?

Accepted Answer

A)  A car manufacturer acquires a car parts supplier. 
B)  A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C)  A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D)  An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E)  A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system. 
A)  A car manufacturer acquires a car parts supplier. 
B)  A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C)  A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D)  An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E)  A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system.

Question 16

The takeover market is characterized by peaks of heavy activity followed by quiet troughs of few transactions.

Accepted Answer

A) True 
 B)False

Question 17

Barlow Manufacturing has announced plans to acquire Hull Enterprises.Barlow is trading for $31.50 per share and has a premerger value of $12 billion,while Hull is trading for $21.75 per share and has a premerger value of $4 billion dollars.If the projected synergies from the merger are $675 million,what is the maximum cash offer per share that Barlow could make and still generate a positive NPV?

Accepted Answer

A)  $48.20 
B)  $21.75 
C)  $53.33 
D)  $25.42 
E)  $17.55 
A)  $48.20 
B)  $21.75 
C)  $53.33 
D)  $25.42 
E)  $17.55

Question 18

The fact that a large company can enjoy savings from producing goods in high volume that are not available to a small company is called

Accepted Answer

A)  economies of scale. 
B)  horizontal integration. 
C)  vertical integration. 
D)  economies of scope. 
E)  monopoly gains. 
A)  economies of scale. 
B)  horizontal integration. 
C)  vertical integration. 
D)  economies of scope. 
E)  monopoly gains.

Question 19

You work for a leveraged buyout firm and are evaluating a potential buyout of Boogle Inc.Boogle's stock price is $18,and it has 3 million shares outstanding.You believe that if you buy the company and replace its dismal management team,its value will increase by 50%.You are planning on doing a leveraged buyout of Boogle and will offer $25 per share for control of the company.Assuming you get 50% control,what will your gain from the transaction be?

Accepted Answer

The initial value of Boogle is $18 × 3 m

Question 20

Sol Company has announced plans to acquire Luna Corporation.Sol is trading for $23 per share,and has a premerger value of $7 billion,while Luna is trading for $56 per share and has a premerger value of $5 billion.The projected synergies from the merger are $500 million.If the offer is for $2 billion in cash and the remainder in stock,what is the maximum exchange ratio that Sol could offer in the stock swap portion and still generate a positive NPV?

Accepted Answer

A)  3.04 
B)  2.68 
C)  2.84 
D)  0.48 
E)  0.45 
A)  3.04 
B)  2.68 
C)  2.84 
D)  0.48 
E)  0.45

What is the difference between a friendly takeover and a hostile takeover?

Merger activity is greater during economic expansions than during contractions and correlates with bull markets.

The acquiring corporation in a merger typically captures the value created by the merger.

The freezeout tender offer has a significant disadvantage compared to a leveraged buyout because an acquiring corporation must make an all-cash offer.

Tata Motors,a car manufacturer,has decided to enter into a merger with Axon Industries,the company that supplies Tata with many of its car parts.What type of synergies are the most likely reason behind this merger?

Once a tender offer is announced,the target's share price immediately rises by the amount of the acquisition premium.

Which of the following is an example of a merger undertaken in order to achieve gains from vertical integration?

The merger of two companies in the same industry that make products required at different stages of the production cycle is called

An extremely lucrative severance package that is guaranteed to a firm's senior managers in the event that the firm is taken over and the managers are let go is called a

Due to strict regulations in Canada and the U.S.,the bidder in a merger will typically be able to acquire a target company for a price less than its current market value.

Which of the following is an example of a merger undertaken in order to achieve gains from acquiring expertise?

The takeover market is characterized by peaks of heavy activity followed by quiet troughs of few transactions.

The fact that a large company can enjoy savings from producing goods in high volume that are not available to a small company is called

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Corporate Governance

Filters

Exam 24: Mergers and Acquisitions

What is the difference between a friendly takeover and a hostile takeover?

Merger activity is greater during economic expansions than during contractions and correlates with bull markets.

The acquiring corporation in a merger typically captures the value created by the merger.

The freezeout tender offer has a significant disadvantage compared to a leveraged buyout because an acquiring corporation must make an all-cash offer.

Tata Motors,a car manufacturer,has decided to enter into a merger with Axon Industries,the company that supplies Tata with many of its car parts.What type of synergies are the most likely reason behind this merger?

Once a tender offer is announced,the target's share price immediately rises by the amount of the acquisition premium.

Which of the following is an example of a merger undertaken in order to achieve gains from vertical integration?

The merger of two companies in the same industry that make products required at different stages of the production cycle is called

An extremely lucrative severance package that is guaranteed to a firm's senior managers in the event that the firm is taken over and the managers are let go is called a

Due to strict regulations in Canada and the U.S.,the bidder in a merger will typically be able to acquire a target company for a price less than its current market value.

Which of the following is an example of a merger undertaken in order to achieve gains from acquiring expertise?

The takeover market is characterized by peaks of heavy activity followed by quiet troughs of few transactions.

The fact that a large company can enjoy savings from producing goods in high volume that are not available to a small company is called

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Corporate Governance

Filters