Question 1

Attempt to gain control of a firm by winning votes of its shareholders is best defined as:

Accepted Answer

A)  Leveraged Buyout. 
B)  Poison Pill. 
C)  Shark Repellent. 
D)  Proxy Contest. 
A)  Leveraged Buyout. 
B)  Poison Pill. 
C)  Shark Repellent. 
D)  Proxy Contest.

Question 2

When an outside group acquires a firm,primarily through the use of borrowed funds,the acquisition is known as a:

Accepted Answer

A)  Management buyout. 
B)  Tender offer. 
C)  Leveraged buyout. 
D)  Successful proxy fight. 
A)  Management buyout. 
B)  Tender offer. 
C)  Leveraged buyout. 
D)  Successful proxy fight.

Question 3

When shareholders attempt to garner additional votes in an attempt to oust management,it is called a:

Accepted Answer

A)  Management buyout. 
B)  Tender offer. 
C)  Proxy contest. 
D)  Poison pill. 
A)  Management buyout. 
B)  Tender offer. 
C)  Proxy contest. 
D)  Poison pill.

Question 4

One indication that investors expect no synergy from a merger would be that:

Accepted Answer

A)  total market value of the merged firms does not change. 
B)  the P/E ratio of the merged firms changes. 
C)  the acquiring firm financed the merger with cash. 
D)  the merged firms are from different industries. 
A)  total market value of the merged firms does not change. 
B)  the P/E ratio of the merged firms changes. 
C)  the acquiring firm financed the merger with cash. 
D)  the merged firms are from different industries.

Question 5

What are some of the motivations for leveraged buyouts?

Accepted Answer

In a leveraged buyout or management buyo

Question 6

The shares of an acquired firm typically trade for a higher value on the open market after an LBO.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

Accepted Answer

A)  There is no cash outflow 
B)  It mitigates the effects of overvaluation of the target firm 
C)  It mitigates the effects of undervaluation of the target firm 
D)  It avoids dilution of shares 
A)  There is no cash outflow 
B)  It mitigates the effects of overvaluation of the target firm 
C)  It mitigates the effects of undervaluation of the target firm 
D)  It avoids dilution of shares

Question 8

In a merger the acquiring firm buys only the assets of the target firm.

Accepted Answer

A) True 
 B)False

Question 9

If Snapper Lawnmowers were to acquire Briggs and Stratton (gasoline-powered engines),the merger would be:

Accepted Answer

A)  a conglomerate. 
B)  a divestiture. 
C)  horizontal. 
D)  vertical. 
A)  a conglomerate. 
B)  a divestiture. 
C)  horizontal. 
D)  vertical.

Question 10

When analyzing a potential merger's cash flows,the most appropriate discount rate is the acquiring firms cost of capital.

Accepted Answer

A) True 
 B)False

Question 11

What type of financing is typically instrumental in bringing about leveraged buyouts?

Accepted Answer

A)  Common-stock financing 
B)  Preferred-stock financing 
C)  Investment-grade bonds 
D)  Speculative-grade bonds 
A)  Common-stock financing 
B)  Preferred-stock financing 
C)  Investment-grade bonds 
D)  Speculative-grade bonds

Question 12

What does empirical evidence suggest about the distribution of gains from mergers?

Accepted Answer

A)  Shareholders of the acquired firm gain the most. 
B)  Shareholders of the acquiring firm gain the most. 
C)  Neither group of shareholders is likely to gain. 
D)  Both groups of shareholders gain equally. 
A)  Shareholders of the acquired firm gain the most. 
B)  Shareholders of the acquiring firm gain the most. 
C)  Neither group of shareholders is likely to gain. 
D)  Both groups of shareholders gain equally.

Question 13

Which of the following statements seems most correct about a firm that has made a cash tender offer for two million shares of ABC Corp.at a price of $20,which is $6 higher than ABC's current value?

Accepted Answer

A)  The economic gain of the merger exceeds $40 million. 
B)  The economic gain of the merger exceeds $28 million. 
C)  The economic gain of the merger exceeds $12 million. 
D)  The economic gain of the merger would be zero after accounting for merger cost. 
A)  The economic gain of the merger exceeds $40 million. 
B)  The economic gain of the merger exceeds $28 million. 
C)  The economic gain of the merger exceeds $12 million. 
D)  The economic gain of the merger would be zero after accounting for merger cost.

Question 14

In vertical mergers,the goal is to benefit from the economies of scale.

Accepted Answer

A) True 
 B)False

Question 15

The "Bootstrap Game" is played somewhat in defiance of traditional merger logic in that it:

Accepted Answer

A)  provides immediate benefit through improved management. 
B)  does not offer a positive NPV from the merger. 
C)  stays in effect only until EPS are increased. 
D)  does not require the approval of a majority of shareholders. 
A)  provides immediate benefit through improved management. 
B)  does not offer a positive NPV from the merger. 
C)  stays in effect only until EPS are increased. 
D)  does not require the approval of a majority of shareholders.

Question 16

A key criterion used by the competition tribunal is whether a merger substantially lessens competition.

Accepted Answer

A) True 
 B)False

Question 17

Mergers may provide reductions in average production cost as a result of:

Accepted Answer

A)  increased market share. 
B)  a more efficient management. 
C)  economies of scale. 
D)  diversification. 
A)  increased market share. 
B)  a more efficient management. 
C)  economies of scale. 
D)  diversification.

Question 18

For firms in a mature stage of life with free cash flow,do you accept the charge that there might be some actual incentive to waste cash?

Accepted Answer

Firms with excess cash know that they mi

Question 19

An acquiring company is considering a takeover of a target company.The acquiring company has 10 million shares outstanding with $40 per share.The target company has 5 million shares outstanding which sell for $20 per share.If the acquiring company estimates that merger gains will be $20 million,determine what the highest price will be paid per share for the target.

Accepted Answer

A)  $24 
B)  $26 
C)  $28 
D)  $30 
A)  $24 
B)  $26 
C)  $28 
D)  $30

Question 20

In which of the following ways can the management teams of many corporations influence the board of directors?

Accepted Answer

A)  By merging with another firm 
B)  Through appointment of shareholders to replace current board members 
C)  Through management's nomination of board candidates 
D)  By declaring a liquidating cash dividend 
A)  By merging with another firm 
B)  Through appointment of shareholders to replace current board members 
C)  Through management's nomination of board candidates 
D)  By declaring a liquidating cash dividend

Exam 23: Mergers, Acquisitions, and Corporate Control

Attempt to gain control of a firm by winning votes of its shareholders is best defined as:

When an outside group acquires a firm,primarily through the use of borrowed funds,the acquisition is known as a:

When shareholders attempt to garner additional votes in an attempt to oust management,it is called a:

One indication that investors expect no synergy from a merger would be that:

What are some of the motivations for leveraged buyouts?

The shares of an acquired firm typically trade for a higher value on the open market after an LBO.

Which of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

In a merger the acquiring firm buys only the assets of the target firm.

If Snapper Lawnmowers were to acquire Briggs and Stratton (gasoline-powered engines),the merger would be:

When analyzing a potential merger's cash flows,the most appropriate discount rate is the acquiring firms cost of capital.

What type of financing is typically instrumental in bringing about leveraged buyouts?

What does empirical evidence suggest about the distribution of gains from mergers?

Which of the following statements seems most correct about a firm that has made a cash tender offer for two million shares of ABC Corp.at a price of $20,which is $6 higher than ABC's current value?

In vertical mergers,the goal is to benefit from the economies of scale.

The "Bootstrap Game" is played somewhat in defiance of traditional merger logic in that it:

A key criterion used by the competition tribunal is whether a merger substantially lessens competition.

Mergers may provide reductions in average production cost as a result of:

For firms in a mature stage of life with free cash flow,do you accept the charge that there might be some actual incentive to waste cash?

In which of the following ways can the management teams of many corporations influence the board of directors?

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