Question 1

When a hostile takeover appears to be inevitable,a target company will sometimes look for another,friendlier company to acquire it called a

Accepted Answer

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

Question 2

Greentree Holdings has announced plans to acquire Mackinac Corporation.Greentree is trading for $18 per share and has a premerger value of $950 million,while Mackinac is trading for $30 per share and has a premerger value of $225 million dollars.If Greentree's maximum offer is 2 shares for each Mackinac share,what are the projected synergies from the merger?

Accepted Answer

A)  $112.5 million 
B)  $45 million 
C)  $190 million 
D)  $225 million 
E)  $75 million 
A)  $112.5 million 
B)  $45 million 
C)  $190 million 
D)  $225 million 
E)  $75 million

Question 3

Why have conglomerate mergers fallen out of favour?

Accepted Answer

Conglomerate mergers are no lo

Question 4

Barlow Manufacturing has announced plans to acquire Hull Enterprises.Barlow is trading for $19.25 per share and has a premerger value of $3 billion,while Hull is trading for $41.35 per share and has a premerger value of $950 million dollars.If the projected synergies from the merger are $425 million,what is the maximum exchange ratio that Barlow could offer in a stock swap and still generate a positive NPV?

Accepted Answer

A)  2.379 
B)  0.531 
C)  3.109 
D)  2.452 
E)  0.674 
A)  2.379 
B)  0.531 
C)  3.109 
D)  2.452 
E)  0.674

Question 5

Consider a case in which existing shareholders do not have to invest time and effort,but still participate in the gains from a takeover,while the bidder who puts in the time and effort is forced to give up substantial profits.This situation is called

Accepted Answer

A)  the free rider problem. 
B)  a toehold. 
C)  a leveraged buyout. 
D)  a freezeout merger. 
E)  a management buyout. 
A)  the free rider problem. 
B)  a toehold. 
C)  a leveraged buyout. 
D)  a freezeout merger. 
E)  a management buyout.

Question 6

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.In a perfect capital market,how many shares must Bob offer Cat's shareholders in exchange for their shares?

Accepted Answer

A)  1 share of BobCat for each share of Cat Enterprises 
B)  0.625 shares of BobCat company for each share of Cat Enterprises 
C)  1.6 shares of BobCat company for each share of Cat Enterprises 
D)  0.3846 shares of BobCat company for each share of Cat Enterprises 
E)  1.25 shares of BobCat company for each share of Cat Enterprises 
A)  1 share of BobCat for each share of Cat Enterprises 
B)  0.625 shares of BobCat company for each share of Cat Enterprises 
C)  1.6 shares of BobCat company for each share of Cat Enterprises 
D)  0.3846 shares of BobCat company for each share of Cat Enterprises 
E)  1.25 shares of BobCat company for each share of Cat Enterprises

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 is the difference between economies of scale and economies of scope?

Accepted Answer

Economies of scale refer to the savings

Question 8

What is the major drawback of adopting a poison pill?

Accepted Answer

By adopting a poison pill,a co

Question 9

A merger in which the target's industry buys or sells to the acquirer's industry is called a(n)

Accepted Answer

A)  horizontal merger. 
B)  vertical merger. 
C)  conglomerate merger. 
D)  industrial merger. 
E)  complementary merger. 
A)  horizontal merger. 
B)  vertical merger. 
C)  conglomerate merger. 
D)  industrial merger. 
E)  complementary merger.

Question 10

Mayo Corporation is currently trading at $30 per share.There are 10 million shares outstanding and the company has no debt.You believe that the value of the company would increase by 50% if the management were replaced.How much would you need to offer in total to acquire 50% of Mayo's shares?

Accepted Answer

A)  $300 million 
B)  $150 million 
C)  $100 million 
D)  $10 million 
E)  $50 million 
A)  $300 million 
B)  $150 million 
C)  $100 million 
D)  $10 million 
E)  $50 million

Question 11

Why does a recapitalization make a firm a less attractive target for a takeover?

Accepted Answer

A company that undertakes a recapitaliza

Question 12

Consider two firms,Big Company and Little Enterprises,both with earnings of $6 per share and 2 million shares outstanding.Big is a mature company with few growth opportunities and a stock price of $56 per share.Little is a new firm with much higher growth opportunities and a stock price of $72 per share.Assume Little acquires Big using its own stock and the takeover adds no value.What is the change in Little's earnings per share as a result of the acquisition?

Accepted Answer

A)  $3.86 
B)  -$2.63 
C)  $0.75 
D)  $0 
E)  $6.00 
A)  $3.86 
B)  -$2.63 
C)  $0.75 
D)  $0 
E)  $6.00

Question 13

Consider two firms,Left Company and Right Enterprises,both with earnings of $2.50 per share and 15 million shares outstanding.Left is a mature company with few growth opportunities and a stock price of $7 per share.Right is a new firm with much higher growth opportunities and a stock price of $16 per share.Assume Right acquires Left using its own stock and the takeover adds no value.What is the change in Right's earnings per share as a result of the acquisition?

Accepted Answer

A)  $0.98 
B)  $3.21 
C)  -$0.76 
D)  $0 
E)  $2.50 
A)  $0.98 
B)  $3.21 
C)  -$0.76 
D)  $0 
E)  $2.50

Question 14

Sol Company has announced plans to acquire Luna Corporation.Sol is trading for $210 per share,and has a premerger value of $22 billion,while Luna is trading for $145 per share and has a premerger value of $14 billion.The projected synergies from the merger are $1 billion.If the offer is for $8 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)  0.81 
B)  0.74 
C)  0.72 
D)  1.69 
E)  1.55 
A)  0.81 
B)  0.74 
C)  0.72 
D)  1.69 
E)  1.55

Question 15

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 the possible managerial motives to merge?

Accepted Answer

1)Conflicts of interest: managers may pr

Question 16

Shaw Communications Inc.proposes a merger with Rogers Communications Inc.The combined firm is expected to serve over 70% of the Canadian telecommunications market.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 17

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.
-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.
Assume that Martin pays no premium to acquire Luther.Calculate Martin's price-earnings (P/E)ratio both pre- and post-merger.

Accepted Answer

Premerger P/E = @#IMG-DLM& = 10.67
First,since Mar

Question 18

A merger in which the target and acquirer operate in unrelated industries is called a(n)

Accepted Answer

A)  horizontal merger. 
B)  vertical merger. 
C)  conglomerate merger. 
D)  industrial merger. 
E)  complementary merger. 
A)  horizontal merger. 
B)  vertical merger. 
C)  conglomerate merger. 
D)  industrial merger. 
E)  complementary merger.

Question 19

Sol Company has announced plans to acquire Luna Corporation at a premium of 20% over the pre-announcement share price.Sol is trading for $42 per share,and has a premerger value of $14 billion.Prior to the announcement,Luna was trading for $71 per share,and currently has 106 million shares outstanding.The projected synergies from the merger are $1.5 billion.What is the maximum exchange ratio that Sol could offer in a stock swap transaction and still generate a positive NPV?

Accepted Answer

A)  1.97 
B)  2.03 
C)  2.43 
D)  2.37 
E)  0.58 
A)  1.97 
B)  2.03 
C)  2.43 
D)  2.37 
E)  0.58

Question 20

Which of the following is an example of a merger undertaken in order to achieve economies of scale?

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.

When a hostile takeover appears to be inevitable,a target company will sometimes look for another,friendlier company to acquire it called a

Why have conglomerate mergers fallen out of favour?

Consider a case in which existing shareholders do not have to invest time and effort,but still participate in the gains from a takeover,while the bidder who puts in the time and effort is forced to give up substantial profits.This situation is called

What is the major drawback of adopting a poison pill?

A merger in which the target's industry buys or sells to the acquirer's industry is called a(n)

Mayo Corporation is currently trading at $30 per share.There are 10 million shares outstanding and the company has no debt.You believe that the value of the company would increase by 50% if the management were replaced.How much would you need to offer in total to acquire 50% of Mayo's shares?

Why does a recapitalization make a firm a less attractive target for a takeover?

Shaw Communications Inc.proposes a merger with Rogers Communications Inc.The combined firm is expected to serve over 70% of the Canadian telecommunications market.What type of synergies are the most likely reason behind this merger?

A merger in which the target and acquirer operate in unrelated industries is called a(n)

Which of the following is an example of a merger undertaken in order to achieve economies of scale?

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

When a hostile takeover appears to be inevitable,a target company will sometimes look for another,friendlier company to acquire it called a

Why have conglomerate mergers fallen out of favour?

Consider a case in which existing shareholders do not have to invest time and effort,but still participate in the gains from a takeover,while the bidder who puts in the time and effort is forced to give up substantial profits.This situation is called

What is the major drawback of adopting a poison pill?

A merger in which the target's industry buys or sells to the acquirer's industry is called a(n)

Mayo Corporation is currently trading at $30 per share.There are 10 million shares outstanding and the company has no debt.You believe that the value of the company would increase by 50% if the management were replaced.How much would you need to offer in total to acquire 50% of Mayo's shares?

Why does a recapitalization make a firm a less attractive target for a takeover?

Shaw Communications Inc.proposes a merger with Rogers Communications Inc.The combined firm is expected to serve over 70% of the Canadian telecommunications market.What type of synergies are the most likely reason behind this merger?

A merger in which the target and acquirer operate in unrelated industries is called a(n)

Which of the following is an example of a merger undertaken in order to achieve economies of scale?

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