Question 1

Why are firms with free cash flow attractive acquisition candidates?

Accepted Answer

In the case of acquisitions,firms are ty

Question 2

When two firms merge,the value of the acquiring firm will change by the:

Accepted Answer

A)  gain from the merger. 
B)  NPV minus the cost of the merger. 
C)  NPV of the merger. 
D)  cost of the merger. 
A)  gain from the merger. 
B)  NPV minus the cost of the merger. 
C)  NPV of the merger. 
D)  cost of the merger.

Question 3

Other things equal,which of the following groups of stakeholders should expect to lose value as a result of an LBO?

Accepted Answer

A)  Selling shareholders 
B)  Buying shareholders 
C)  Bondholders 
D)  Investment bankers 
A)  Selling shareholders 
B)  Buying shareholders 
C)  Bondholders 
D)  Investment bankers

Question 4

Discuss how tactics such as shark repellents or poison pills accomplish their intent.

Accepted Answer

A shark repellent is a less serious tact

Question 5

Large-scale efforts to make a firm less appealing in the midst of a potential merger are known as:

Accepted Answer

A)  Proxy fights. 
B)  Leveraged buyouts. 
C)  Shark repellents. 
D)  Poison pills. 
A)  Proxy fights. 
B)  Leveraged buyouts. 
C)  Shark repellents. 
D)  Poison pills.

Question 6

Which of the following statements is correct for a firm that has undergone a leveraged buyout?

Accepted Answer

A)  Its shares are traded publicly 
B)  Its capital is mostly equity financed 
C)  Its shares are not traded publicly 
D)  It has a larger shareholder base 
A)  Its shares are traded publicly 
B)  Its capital is mostly equity financed 
C)  Its shares are not traded publicly 
D)  It has a larger shareholder base

Question 7

The free-cash-flow theory of takeovers predicts that:

Accepted Answer

A)  Firms without free cash flow will become the most common LBOs. 
B)  Firms with free cash flow will continue to be the acquirers. 
C)  Firms with excess cash do not have a tendency to use it wisely. 
D)  The riskiest takeover candidates are those with large amounts of free cash flow. 
A)  Firms without free cash flow will become the most common LBOs. 
B)  Firms with free cash flow will continue to be the acquirers. 
C)  Firms with excess cash do not have a tendency to use it wisely. 
D)  The riskiest takeover candidates are those with large amounts of free cash flow.

Question 8

Which of the following might you recommend to a firm with excessive free cash flow?

Accepted Answer

A)  Acquire a firm to diversify 
B)  Acquire a firm to bootstrap earnings 
C)  A leveraged buyout 
D)  A repurchase of shares 
A)  Acquire a firm to diversify 
B)  Acquire a firm to bootstrap earnings 
C)  A leveraged buyout 
D)  A repurchase of shares

Question 9

It is easier for individual investors to diversify their risk by buying shares in different firms than for the firms to combine their operations.

Accepted Answer

A) True 
 B)False

Question 10

A merger between two firms in a similar industry is an example of vertical merger.

Accepted Answer

A) True 
 B)False

Question 11

Mergers that attempt to bootstrap earnings may obtain increased current earnings per share at the expense of:

Accepted Answer

A)  a higher price-earnings ratio. 
B)  higher total combined market value. 
C)  reduced future growth prospects. 
D)  increased free-cash-flow. 
A)  a higher price-earnings ratio. 
B)  higher total combined market value. 
C)  reduced future growth prospects. 
D)  increased free-cash-flow.

Question 12

If an automobile manufacturer were to acquire one of the firms listed in the answer options,which acquisition would be called a horizontal merger?

Accepted Answer

A)  A steel mill 
B)  A rival manufacturer 
C)  A tire producer 
D)  A bank 
A)  A steel mill 
B)  A rival manufacturer 
C)  A tire producer 
D)  A bank

Question 13

The cost of a merger may outweigh the potential gain if the:

Accepted Answer

A)  present value of the acquired firm exceeds the price paid for it. 
B)  present value of the merged firms is greater than the sum of their individual values. 
C)  merger allows cost savings to occur. 
D)  acquired firm's shareholders receive more than the value of their firm. 
A)  present value of the acquired firm exceeds the price paid for it. 
B)  present value of the merged firms is greater than the sum of their individual values. 
C)  merger allows cost savings to occur. 
D)  acquired firm's shareholders receive more than the value of their firm.

Question 14

A merger adds value by creating synergies.Which of the following is not a possible source of synergy?

Accepted Answer

A)  Economies of scale 
B)  Economies of vertical integration 
C)  Combining complementary resources 
D)  Diversification 
A)  Economies of scale 
B)  Economies of vertical integration 
C)  Combining complementary resources 
D)  Diversification

Question 15

CBA Corp.is worth $15 million as a stand-alone firm.ABC Corp.has offered 350,000 shares valued at $50 each to merge with CBA.After the merger,however,ABC's shares are worth only $45 per share.What was the cost of the merger?

Accepted Answer

A)  ($1.75 million) 
B)  $0.75 million 
C)  $1.75 million 
D)  $3.25 million 
A)  ($1.75 million) 
B)  $0.75 million 
C)  $1.75 million 
D)  $3.25 million

Question 16

How are the gains from mergers distributed between the shareholders of the acquired and acquiring firms?

Accepted Answer

We observed that when the target firm is

Question 17

Why is it stated that the safest way of evaluating the potential gains from a merger is to focus on changes in cash flow that will transpire as a result of the merger?

Accepted Answer

The alternative to this approach is to d

Question 18

A tender offer is one in which the firm's:

Accepted Answer

A)  management offers to sell the company to an acquirer. 
B)  board of directors offers to sell the company to the public. 
C)  shareholders are propositioned to sell their shares to outsiders. 
D)  management offers to buy all outstanding shares of the corporation. 
A)  management offers to sell the company to an acquirer. 
B)  board of directors offers to sell the company to the public. 
C)  shareholders are propositioned to sell their shares to outsiders. 
D)  management offers to buy all outstanding shares of the corporation.

Question 19

Firm B's one million shares of stock currently sell for $20 each.Firm A estimates the economic gain from the merger to be $10 million and is prepared to offer $22 cash for each share of B) What percentage of the merger gain will be captured by firm B's shareholders?

Accepted Answer

A)  20.00% 
B)  33.33% 
C)  50.00% 
D)  60.00% 
A)  20.00% 
B)  33.33% 
C)  50.00% 
D)  60.00%

Exam 23: Mergers, Acquisitions, and Corporate Control

Why are firms with free cash flow attractive acquisition candidates?

When two firms merge,the value of the acquiring firm will change by the:

Other things equal,which of the following groups of stakeholders should expect to lose value as a result of an LBO?

Discuss how tactics such as shark repellents or poison pills accomplish their intent.

Large-scale efforts to make a firm less appealing in the midst of a potential merger are known as:

Which of the following statements is correct for a firm that has undergone a leveraged buyout?

The free-cash-flow theory of takeovers predicts that:

Which of the following might you recommend to a firm with excessive free cash flow?

It is easier for individual investors to diversify their risk by buying shares in different firms than for the firms to combine their operations.

A merger between two firms in a similar industry is an example of vertical merger.

Mergers that attempt to bootstrap earnings may obtain increased current earnings per share at the expense of:

If an automobile manufacturer were to acquire one of the firms listed in the answer options,which acquisition would be called a horizontal merger?

The cost of a merger may outweigh the potential gain if the:

A merger adds value by creating synergies.Which of the following is not a possible source of synergy?

CBA Corp.is worth $15 million as a stand-alone firm.ABC Corp.has offered 350,000 shares valued at $50 each to merge with CBA.After the merger,however,ABC's shares are worth only $45 per share.What was the cost of the merger?

How are the gains from mergers distributed between the shareholders of the acquired and acquiring firms?

Why is it stated that the safest way of evaluating the potential gains from a merger is to focus on changes in cash flow that will transpire as a result of the merger?

A tender offer is one in which the firm's:

Firm B's one million shares of stock currently sell for $20 each.Firm A estimates the economic gain from the merger to be $10 million and is prepared to offer $22 cash for each share of B) What percentage of the merger gain will be captured by firm B's shareholders?

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