Question 1

A tender offer is an agreement between the management and shareholders of a firm to buy back its own shares.

Accepted Answer

A) True 
 B)False

Question 2

The shareholders of firm A have offered one million shares valued at $10 each to acquire firm B) After the merger is announced, stock A trades for $9 per share. Which of the following statements is not correct?

Accepted Answer

A)  Firm A appears to have overbid for firm B 
B)  The NPV of the merger may differ from expectations 
C)  Shareholders of A absorb all additional "cost" 
D)  A's stockholders are better off than if the merger were cash financed for $10 million 
A)  Firm A appears to have overbid for firm B 
B)  The NPV of the merger may differ from expectations 
C)  Shareholders of A absorb all additional "cost" 
D)  A's stockholders are better off than if the merger were cash financed for $10 million

Question 3

Empirical studies show that the operating efficiency of firms having undergone a leverage buyout,______ over the following 3 years.

Accepted Answer

A)  Increases 
B)  Decreases 
C)  Does not change 
D)  Shows no clear trend 
A)  Increases 
B)  Decreases 
C)  Does not change 
D)  Shows no clear trend

Question 4

One of the reasons why proxy fights are rarely successful is that:

Accepted Answer

A)  management is always viewed as performing their jobs well. 
B)  management can use corporate resources to defend against the fight. 
C)  mergers are a cheaper form of changing management. 
D)  shareholders are unconcerned with corporate management. 
A)  management is always viewed as performing their jobs well. 
B)  management can use corporate resources to defend against the fight. 
C)  mergers are a cheaper form of changing management. 
D)  shareholders are unconcerned with corporate management.

Question 5

According to the free-cash-flow theory of takeovers,post-merger gains in market value represent:

Accepted Answer

A)  an illogical assessment of earnings prospects. 
B)  the remaining costs of the merger. 
C)  the present value of free-cash-flow that will no longer be misused. 
D)  losses experienced by arbitrageurs and other speculators. 
A)  an illogical assessment of earnings prospects. 
B)  the remaining costs of the merger. 
C)  the present value of free-cash-flow that will no longer be misused. 
D)  losses experienced by arbitrageurs and other speculators.

Question 6

Describe the basic differences between mergers,leveraged buyouts,management buyouts,divestitures,and spin-offs.

Accepted Answer

A merger occurs when an acquiring compan

Question 7

Firm B's one million shares of stock currently sell for $12 each,but Firm A is preparing an $18 per share tender offer.Firm A estimates the gain of the merger to be $6 million.What percentage of the merger gains will be captured by B's stockholders?

Accepted Answer

A)  33.33% 
B)  50.00% 
C)  66.67% 
D)  75.00% 
A)  33.33% 
B)  50.00% 
C)  66.67% 
D)  75.00%

Question 8

Firms A and B are each worth $50 million,but generate a $20 million gain when merged.If the cost of the merger was $5 million,how much did Firm A pay for Firm B?

Accepted Answer

A)  $50 million 
B)  $55 million 
C)  $60 million 
D)  $65 million 
A)  $50 million 
B)  $55 million 
C)  $60 million 
D)  $65 million

Question 9

The observation that cash-rich firms often use the funds to diversify rather than increase dividends indicates that:

Accepted Answer

A)  diversification is too costly for individuals. 
B)  growth is often valued for the sake of growth alone. 
C)  diversification is synergistic. 
D)  dividend-pricing models are of questionable value. 
A)  diversification is too costly for individuals. 
B)  growth is often valued for the sake of growth alone. 
C)  diversification is synergistic. 
D)  dividend-pricing models are of questionable value.

Question 10

Which of the following is not a category of mergers?

Accepted Answer

A)  Horizontal 
B)  Vertical 
C)  Conglomerate 
D)  Diagonal 
A)  Horizontal 
B)  Vertical 
C)  Conglomerate 
D)  Diagonal

Question 11

If the shareholders of an acquired firm capture all of the merger's gain,then the:

Accepted Answer

A)  cost of the merger is zero. 
B)  NPV of the merger is zero. 
C)  EPS will increase. 
D)  acquiring firm retains all merger benefits. 
A)  cost of the merger is zero. 
B)  NPV of the merger is zero. 
C)  EPS will increase. 
D)  acquiring firm retains all merger benefits.

Question 12

If two merged firms are shown to have a higher combined market value than the sum of the individual market values,then:

Accepted Answer

A)  economic gains are said to have taken place. 
B)  the firms were previously underpriced. 
C)  the merger provides diversification to investors. 
D)  there is no cost involved in the merger. 
A)  economic gains are said to have taken place. 
B)  the firms were previously underpriced. 
C)  the merger provides diversification to investors. 
D)  there is no cost involved in the merger.

Question 13

The cost of a merger equals the:

Accepted Answer

A)  cash paid for the target firm. 
B)  increase in total earnings less the price paid. 
C)  premium paid over the target's value as a separate entity. 
D)  sum of cash and stock paid for the target firm. 
A)  cash paid for the target firm. 
B)  increase in total earnings less the price paid. 
C)  premium paid over the target's value as a separate entity. 
D)  sum of cash and stock paid for the target firm.

Question 14

Contrary to logic,firms that enjoy complementary resources in the production process are rarely good candidates for merger.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is least likely to provide a motivation for vertical integration?

Accepted Answer

A)  A continuous source of raw materials 
B)  A desire to spread fixed costs across more output 
C)  Access to an efficient distribution channel 
D)  Acquisition of an established customer base 
A)  A continuous source of raw materials 
B)  A desire to spread fixed costs across more output 
C)  Access to an efficient distribution channel 
D)  Acquisition of an established customer base

Question 16

Diversification is often a poor motive for mergers because:

Accepted Answer

A)  vertical integration is rarely successful. 
B)  investors can diversify on their own account. 
C)  it does not produce economies of scale. 
D)  the increase in taxes overcomes gains in earnings. 
A)  vertical integration is rarely successful. 
B)  investors can diversify on their own account. 
C)  it does not produce economies of scale. 
D)  the increase in taxes overcomes gains in earnings.

Question 17

When a firm's management takes the firm private with the aid of substantial debt it is known as a(n):

Accepted Answer

A)  Tender offer. 
B)  Greenmail offer. 
C)  MBO. 
D)  Hostile takeover. 
A)  Tender offer. 
B)  Greenmail offer. 
C)  MBO. 
D)  Hostile takeover.

Question 18

The track record for proxy fights suggests they are:

Accepted Answer

A)  usually successful in forcing management out. 
B)  only successful when accompanied by a tender offer. 
C)  rarely effective in taking over management. 
D)  the first step in a hostile takeover. 
A)  usually successful in forcing management out. 
B)  only successful when accompanied by a tender offer. 
C)  rarely effective in taking over management. 
D)  the first step in a hostile takeover.

Question 19

A merger is expected to produce cost savings of $50 million and the acquired firm's shareholders will receive a premium of 20% over the $150 million value of their firm.The gain of the merger to the acquirer is:

Accepted Answer

A)  $20 million. 
B)  $30 million. 
C)  $50 million. 
D)  $130 million. 
A)  $20 million. 
B)  $30 million. 
C)  $50 million. 
D)  $130 million.

Question 20

One common explanation for the success of MBOs is the incentive effect of leverage.Explain.

Accepted Answer

In an MBO the management becomes the equ

Exam 23: Mergers, Acquisitions, and Corporate Control

A tender offer is an agreement between the management and shareholders of a firm to buy back its own shares.

The shareholders of firm A have offered one million shares valued at $10 each to acquire firm B) After the merger is announced, stock A trades for $9 per share. Which of the following statements is not correct?

Empirical studies show that the operating efficiency of firms having undergone a leverage buyout,______ over the following 3 years.

One of the reasons why proxy fights are rarely successful is that:

According to the free-cash-flow theory of takeovers,post-merger gains in market value represent:

Describe the basic differences between mergers,leveraged buyouts,management buyouts,divestitures,and spin-offs.

Firm B's one million shares of stock currently sell for $12 each,but Firm A is preparing an $18 per share tender offer.Firm A estimates the gain of the merger to be $6 million.What percentage of the merger gains will be captured by B's stockholders?

Firms A and B are each worth $50 million,but generate a $20 million gain when merged.If the cost of the merger was $5 million,how much did Firm A pay for Firm B?

The observation that cash-rich firms often use the funds to diversify rather than increase dividends indicates that:

Which of the following is not a category of mergers?

If the shareholders of an acquired firm capture all of the merger's gain,then the:

If two merged firms are shown to have a higher combined market value than the sum of the individual market values,then:

The cost of a merger equals the:

Contrary to logic,firms that enjoy complementary resources in the production process are rarely good candidates for merger.

Which of the following is least likely to provide a motivation for vertical integration?

Diversification is often a poor motive for mergers because:

When a firm's management takes the firm private with the aid of substantial debt it is known as a(n):

The track record for proxy fights suggests they are:

A merger is expected to produce cost savings of $50 million and the acquired firm's shareholders will receive a premium of 20% over the $150 million value of their firm.The gain of the merger to the acquirer is:

One common explanation for the success of MBOs is the incentive effect of leverage.Explain.

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