Question 1

Explain the motivation for a company to divest through a spin-off or equity carve-out.

Accepted Answer

Spinoffs or equity carve-outs may be motivated by a need for cash. The subsidiary or division becomes a separate company and stock in the separate company is distributed to shareholders of the parent company. Owners of the parent company who receive common stock can then keep the stock or sell them to other investors.
Spinoffs and equity carve-outs can be used to remove an underperforming unit that is hurting the overall firm.
Spinoffs and equity carve-outs can be used to develop or promote a company that is healthy but is buried among the underperforming units.

Question 2

All of the following are anti-takeover measures except:

Accepted Answer

A)  black knight 
B)  staggered board 
C)  super major voting rules 
D)  golden parachute 
A)  black knight 
B)  staggered board 
C)  super major voting rules 
D)  golden parachute A

Question 3

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 B

Question 4

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 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

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 7

There are three methods for valuing merger candidates. Briefly explain each of them.

Accepted Answer

The methods for valuing merger candidate

Question 8

____ 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 9

In a ____, the acquiring company effectively announces that it will pay a certain price above the current existing price for a merger candidate's shares.

Accepted Answer

A)  leveraged buyout 
B)  tender offer 
C)  equity carve-out 
D)  divestiture 
A)  leveraged buyout 
B)  tender offer 
C)  equity carve-out 
D)  divestiture

Question 10

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 11

The most correct method of valuing a merger candidate is:

Accepted Answer

A)  adjusted book value method 
B)  discounted cash flow method 
C)  pooling of interests method 
D)  comparative price-earnings ratio method 
A)  adjusted book value method 
B)  discounted cash flow method 
C)  pooling of interests method 
D)  comparative price-earnings ratio method

Question 12

An example of a passive institutional investor is a:

Accepted Answer

A)  pension fund 
B)  private equity investor 
C)  parent company 
D)  third party administrator 
A)  pension fund 
B)  private equity investor 
C)  parent company 
D)  third party administrator

Question 13

Which of the following would be considered a reason for corporate restructuring?
I. Availability of credit
II. Low cost of credit

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 14

Millicom is acquiring Vikonic's outstanding common stock for $15 million. Financial information (in $ millions) on these two firms prior to the acquisition is as follows:
  
-What are the total assets and stockholders' equity (in $ millions) if the pooling of interests method had been used as the accounting method for this merger?

Accepted Answer

A)  $130, $63 
B)  $130, $67 
C)  $132, $65 
D)  $132, $67 
A)  $130, $63 
B)  $130, $67 
C)  $132, $65 
D)  $132, $67

Question 15

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

Accepted Answer

Some institutional investors have develo

Question 16

When the market value of a company's common stock is below the replacement value of the firm's net assets, this company is frequently referred to as a possible ____.

Accepted Answer

A)  white knight 
B)  leveraged buyout 
C)  takeover candidate 
D)  conglomerate 
A)  white knight 
B)  leveraged buyout 
C)  takeover candidate 
D)  conglomerate

Question 17

In a ____ form of business combination, a parent-subsidiary relationship exists between the acquiring and acquired companies.

Accepted Answer

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

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.
  
-What is Essex's post-merger share price if the post-merger price/earnings ratio is 7.5, and the exchange ratio is 0.4. Assume total post-merger earnings are $43,740,000.

Accepted Answer

A)  $60.75 
B)  $54.98 
C)  $64.80 
D)  $30.42 
A)  $60.75 
B)  $54.98 
C)  $64.80 
D)  $30.42

Question 19

The accounting method used in most mergers is the ____ method.

Accepted Answer

A)  pooling of interests 
B)  purchase 
C)  consolidation 
D)  merger 
A)  pooling of interests 
B)  purchase 
C)  consolidation 
D)  merger

Question 20

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

Exam 23: Corporate Restructuring

Explain the motivation for a company to divest through a spin-off or equity carve-out.

All of the following are anti-takeover measures except:

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.

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

Technical insolvency occurs when

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 ____.

There are three methods for valuing merger candidates. Briefly explain each of them.

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

In a ____, the acquiring company effectively announces that it will pay a certain price above the current existing price for a merger candidate's shares.

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

The most correct method of valuing a merger candidate is:

An example of a passive institutional investor is a:

Which of the following would be considered a reason for corporate restructuring? I. Availability of credit II. Low cost of credit

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

When the market value of a company's common stock is below the replacement value of the firm's net assets, this company is frequently referred to as a possible ____.

In a ____ form of business combination, a parent-subsidiary relationship exists between the acquiring and acquired companies.

The accounting method used in most mergers is the ____ method.

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

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

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

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Lease and Intermediate-term Financing

Financing With Derivatives

Risk Management

International Financial Management

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

Bond Refunding Analysis

Taxes

Filters