Question 1

Which of the following methods is the least likely to provide a change of corporate management?

Accepted Answer

A)  Successful proxy fight 
B)  Voluntary resignation of all managers 
C)  Leveraged buyout of the firm 
D)  Merger or acquisition 
A)  Successful proxy fight 
B)  Voluntary resignation of all managers 
C)  Leveraged buyout of the firm 
D)  Merger or acquisition B

Question 2

On average,shareholders in target firms earn higher returns from mergers than shareholders from acquiring firms.

Accepted Answer

A) True 
 B)False  True

Question 3

Generally,a shareholder in the firm that is being acquired gains the most from a corporate merger.

Accepted Answer

A) True 
 B)False  False

Question 4

The proliferation of junk bonds in the 1980s greatly increased the feasibility of LBOs.

Accepted Answer

A) True 
 B)False

Question 5

In mergers financed by cash,the merger cost is not affected by the size of the merger gain.

Accepted Answer

A) True 
 B)False

Question 6

What does it mean when a company is said to have been merged under the term acquisition?

Accepted Answer

A)  Boards of directors will merge also. 
B)  Merger must be approved by 75% of the shareholders of the target firm. 
C)  Merger must be approved by at least 50% of the shareholders of the target firm. 
D)  Target firm will cease to exist. 
A)  Boards of directors will merge also. 
B)  Merger must be approved by 75% of the shareholders of the target firm. 
C)  Merger must be approved by at least 50% of the shareholders of the target firm. 
D)  Target firm will cease to exist.

Question 7

A firm seeking a friendly acquirer to avoid a hostile takeover is in need of a:

Accepted Answer

A)  Bootstrap. 
B)  White knight. 
C)  Poison pill. 
D)  Greenmail attempt. 
A)  Bootstrap. 
B)  White knight. 
C)  Poison pill. 
D)  Greenmail attempt.

Question 8

The major cost of a merger is:

Accepted Answer

A)  the legal fees. 
B)  the cost of restructuring the acquired firm. 
C)  the premium the acquirer pays to the target firm. 
D)  the reduction in free cash flow. 
A)  the legal fees. 
B)  the cost of restructuring the acquired firm. 
C)  the premium the acquirer pays to the target firm. 
D)  the reduction in free cash flow.

Question 9

In what ways do companies change the composition of ownership and management?

Accepted Answer

There are several methods to change corp

Question 10

Splitting AT&T in 1996 into four separate firms is an example of:

Accepted Answer

A)  Leveraged buyout. 
B)  Spin-off. 
C)  Management buyout. 
D)  Tender offer. 
A)  Leveraged buyout. 
B)  Spin-off. 
C)  Management buyout. 
D)  Tender offer.

Question 11

An increase in earnings per share after a merger may not indicate increased value if the:

Accepted Answer

A)  number of shares has increased. 
B)  price of the acquirer's stock increases. 
C)  price/earnings ratios were different in the pre-merger firms. 
D)  firm's additional earnings are spent on legal expenses of the merger. 
A)  number of shares has increased. 
B)  price of the acquirer's stock increases. 
C)  price/earnings ratios were different in the pre-merger firms. 
D)  firm's additional earnings are spent on legal expenses of the merger.

Question 12

A conglomerate merger occurs when:

Accepted Answer

A)  both partners are large in size. 
B)  large synergies are expected to develop. 
C)  firms from different industries merge. 
D)  both management teams remain intact after the merger. 
A)  both partners are large in size. 
B)  large synergies are expected to develop. 
C)  firms from different industries merge. 
D)  both management teams remain intact after the merger.

Question 13

Companies spin off the business by selling part of the assets to another company.

Accepted Answer

A) True 
 B)False

Question 14

In which merger type would it be least likely to observe economies of scale?

Accepted Answer

A)  Horizontal 
B)  Vertical 
C)  Conglomerate 
D)  It is equally likely to observe economies of scale in all merger types 
A)  Horizontal 
B)  Vertical 
C)  Conglomerate 
D)  It is equally likely to observe economies of scale in all merger types

Question 15

Which of the following is not a method of changing the management of a firm?

Accepted Answer

A)  Proxy contest 
B)  Merger and acquisition 
C)  LBO 
D)  MBO 
A)  Proxy contest 
B)  Merger and acquisition 
C)  LBO 
D)  MBO

Question 16

Why is it not sufficient to state that a merger should occur simply because the economic gains are positive?

Accepted Answer

A)  Gains are typically of an accounting nature 
B)  Shareholders of the target may capture all gains 
C)  Merger cost should be negative after discounting 
D)  The merger's gain must also exceed its NPV 
A)  Gains are typically of an accounting nature 
B)  Shareholders of the target may capture all gains 
C)  Merger cost should be negative after discounting 
D)  The merger's gain must also exceed its NPV

Question 17

Shares of a corporation can,under certain circumstances,be priced at different amounts to different investors under the terms of a:

Accepted Answer

A)  Proxy agreement. 
B)  Public tender offer. 
C)  Poison pill. 
D)  Shark repellent. 
A)  Proxy agreement. 
B)  Public tender offer. 
C)  Poison pill. 
D)  Shark repellent.

Question 18

Amendments to the corporate charter that attempt to circumvent mergers are known as poison pills.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not correct concerning a proposed merger of firms?

Accepted Answer

A)  The acquired firm will cease to exist. 
B)  Shareholders of the acquired firm may receive securities in the acquiring firm. 
C)  Mergers are sometimes combinations of equals. 
D)  Shareholder approval to merge is not required. 
A)  The acquired firm will cease to exist. 
B)  Shareholders of the acquired firm may receive securities in the acquiring firm. 
C)  Mergers are sometimes combinations of equals. 
D)  Shareholder approval to merge is not required.

Question 20

Firms A and B intend to merge and Firm A has calculated the NPV of the merger to be $2 million after paying $8 million for Firm
B. If Firm A had a pre-merger value of $10 million and Firm B had a pre-merger value of $6 million, calculate the value of the merged entity, as well as the cost of the merger.
PVAB = PVA + PVB + gain
= $10 million + $6 million + $4 million
= $20 million
Cost or merger = cash - PVB
= $8 million - $6 million
= $2 million
NPV = $4 million - $2 million
= $2 million

Accepted Answer

PV_AB = PV_A + PV_B + gain = $10 mill

Exam 23: Mergers, Acquisitions, and Corporate Control

Which of the following methods is the least likely to provide a change of corporate management?

On average,shareholders in target firms earn higher returns from mergers than shareholders from acquiring firms.

Generally,a shareholder in the firm that is being acquired gains the most from a corporate merger.

The proliferation of junk bonds in the 1980s greatly increased the feasibility of LBOs.

In mergers financed by cash,the merger cost is not affected by the size of the merger gain.

What does it mean when a company is said to have been merged under the term acquisition?

A firm seeking a friendly acquirer to avoid a hostile takeover is in need of a:

The major cost of a merger is:

In what ways do companies change the composition of ownership and management?

Splitting AT&T in 1996 into four separate firms is an example of:

An increase in earnings per share after a merger may not indicate increased value if the:

A conglomerate merger occurs when:

Companies spin off the business by selling part of the assets to another company.

In which merger type would it be least likely to observe economies of scale?

Which of the following is not a method of changing the management of a firm?

Why is it not sufficient to state that a merger should occur simply because the economic gains are positive?

Shares of a corporation can,under certain circumstances,be priced at different amounts to different investors under the terms of a:

Amendments to the corporate charter that attempt to circumvent mergers are known as poison pills.

Which of the following is not correct concerning a proposed merger of firms?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

International Financial Management

Options

Risk Management

Filters