Question 1

Which one of the following combinations of firms would benefit the most through the use of complementary resources?

Accepted Answer

A)  A ski resort and a travel trailer sales outlet 
B)  A golf resort and a ski resort 
C)  A hotel and a home improvement center 
D)  A swimming pool distributor and a kitchen designer 
E)  A fast food restaurant and a dry cleaner 
A)  A ski resort and a travel trailer sales outlet 
B)  A golf resort and a ski resort 
C)  A hotel and a home improvement center 
D)  A swimming pool distributor and a kitchen designer 
E)  A fast food restaurant and a dry cleaner B

Question 2

ABC and XYZ are all-equity firms. ABC has 1,750 shares outstanding at a market price of $20 a share. XYZ has 2,500 shares outstanding at a price of $28 a share. XYZ is acquiring ABC for $36,000 in cash. The incremental value of the acquisition is $3,000. What is the net present value of acquiring ABC to XYZ?

Accepted Answer

A)  $1,000 
B)  $2,000 
C)  $3,000 
D)  $4,000 
E)  $5,000 
A)  $1,000 
B)  $2,000 
C)  $3,000 
D)  $4,000 
E)  $5,000 B

Question 3

Firm V was worth $450 and Firm A had a market value of $375. Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925. What is the synergy from the merger of Firm V and Firm A?

Accepted Answer

A)  $50 
B)  $100 
C)  $475 
D)  $500 
E)  None of these. 
A)  $50 
B)  $100 
C)  $475 
D)  $500 
E)  None of these. B

Question 4

A dissident group solicits votes in an attempt to replace existing management. This is called a:

Accepted Answer

A)  tender offer. 
B)  shareholder derivative action. 
C)  proxy contest. 
D)  management freeze-out. 
E)  shareholder's revengE. 
A)  tender offer. 
B)  shareholder derivative action. 
C)  proxy contest. 
D)  management freeze-out. 
E)  shareholder's revengE.

Question 5

Alexandra's is being acquired by David's,Inc. for $20,000 worth of David's stock. Miller has 1,300 shares of stock outstanding at a price of $20 a share. Holiday has 1,000 shares outstanding with a market value of $18 a share. The incremental value of the acquisition is $2,000. What is the total number of shares in the new firm?

Accepted Answer

A)  1,000 shares 
B)  1,300 shares 
C)  1,500 shares 
D)  2,000 shares 
E)  2,300 shares 
A)  1,000 shares 
B)  1,300 shares 
C)  1,500 shares 
D)  2,000 shares 
E)  2,300 shares

Question 6

Suppose that General Motors has made an offer to acquire General Mills. Ignoring potential antitrust problems,this merger would be classified as a:

Accepted Answer

A)  monopolistic merger. 
B)  horizontal merger. 
C)  vertical merger. 
D)  conglomerate merger. 
E)  None of these. 
A)  monopolistic merger. 
B)  horizontal merger. 
C)  vertical merger. 
D)  conglomerate merger. 
E)  None of these.

Question 7

A public offer by one firm to directly buy the shares of another firm is called a:

Accepted Answer

A)  merger. 
B)  consolidation. 
C)  tender offer. 
D)  spinoff. 
E)  divestiturE. 
A)  merger. 
B)  consolidation. 
C)  tender offer. 
D)  spinoff. 
E)  divestiturE.

Question 8

A financial device designed to make unfriendly takeover attempts financially unappealing,if not impossible,is called:

Accepted Answer

A)  a golden parachute. 
B)  a standstill agreement. 
C)  greenmail. 
D)  a poison pill. 
E)  a white knight. 
A)  a golden parachute. 
B)  a standstill agreement. 
C)  greenmail. 
D)  a poison pill. 
E)  a white knight.

Question 9

Firm A is acquiring Firm B for $40,000 in cash. Firm A has 2,500 shares of stock outstanding at a market value of $18 a share. Firm B has 1,500 shares of stock outstanding at a market price of $25 a share. Neither firm has any debt. The net present value of the acquisition is $2,500. What is the value of Firm A after the acquisition?

Accepted Answer

A)  $40,000 
B)  $42,500 
C)  $45,000 
D)  $47,500 
E)  $50,000 
A)  $40,000 
B)  $42,500 
C)  $45,000 
D)  $47,500 
E)  $50,000

Question 10

A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Accepted Answer

A)  supermajority amendment. 
B)  standstill agreement. 
C)  greenmail provision. 
D)  poison pill amendment. 
E)  white knight provision. 
A)  supermajority amendment. 
B)  standstill agreement. 
C)  greenmail provision. 
D)  poison pill amendment. 
E)  white knight provision.

Question 11

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n):

Accepted Answer

A)  lockup transaction. 
B)  bear hug. 
C)  equity carve-out. 
D)  spin-off. 
E)  split-up. 
A)  lockup transaction. 
B)  bear hug. 
C)  equity carve-out. 
D)  spin-off. 
E)  split-up.

Question 12

Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Accepted Answer

The three forms are merger,acquisition o

Question 13

Principal,Inc. is acquiring Secondary Companies for $29,000 in cash. Principal has 2,500 shares of stock outstanding at a market price of $30 a share. Secondary has 1,600 shares of stock outstanding at a market price of $15 a share. Neither firm has any debt. The net present value of the acquisition is $4,500. What is the price per share of Principal after the acquisition?

Accepted Answer

A)  $30.00 
B)  $30.70 
C)  $31.80 
D)  $32.10 
E)  $32.50 
A)  $30.00 
B)  $30.70 
C)  $31.80 
D)  $32.10 
E)  $32.50

Question 14

When a building supply store acquires a lumber mill it is making a ______ acquisition.

Accepted Answer

A)  horizontal 
B)  longitudinal 
C)  conglomerate 
D)  vertical 
E)  complementary resources 
A)  horizontal 
B)  longitudinal 
C)  conglomerate 
D)  vertical 
E)  complementary resources

Question 15

In a merger or acquisition,an asset should be acquired if it:

Accepted Answer

A)  generates a positive net present value to the shareholders of an acquiring firm. 
B)  is a firm in the same line of business in which the acquirer has expertise. 
C)  is a firm in a totally different line of business which will diversify the firm. 
D)  pays a large dividend which will provide a cash pass through to the acquirer. 
E)  None of these. 
A)  generates a positive net present value to the shareholders of an acquiring firm. 
B)  is a firm in the same line of business in which the acquirer has expertise. 
C)  is a firm in a totally different line of business which will diversify the firm. 
D)  pays a large dividend which will provide a cash pass through to the acquirer. 
E)  None of these.

Question 16

An attempt to gain control of a firm by soliciting a sufficient number of stockholder votes to replace the current board of directors is called a:

Accepted Answer

A)  tender offer. 
B)  proxy contest. 
C)  going-private transaction. 
D)  leveraged buyout. 
E)  consolidation. 
A)  tender offer. 
B)  proxy contest. 
C)  going-private transaction. 
D)  leveraged buyout. 
E)  consolidation.

Question 17

A reason for acquisitions is synergy. Synergy includes:

Accepted Answer

A)  revenue enhancements. 
B)  cost reductions. 
C)  lower taxes. 
D)  All of these. 
E)  None of these. 
A)  revenue enhancements. 
B)  cost reductions. 
C)  lower taxes. 
D)  All of these. 
E)  None of these.

Question 18

The Peris Co. is planning on merging with the Thornton Co. Peris will pay Thornton's stockholders the current value of their stock in shares of Peris. Peris currently has 2,300 shares of stock outstanding at a market price of $20 a share. Thornton has 1,800 shares outstanding at a price of $15 a share. How many shares of stock will be outstanding in the merged firm?

Accepted Answer

A)  1,800 shares 
B)  2,300 shares 
C)  2,750 shares 
D)  3,650 shares 
E)  4,100 shares 
A)  1,800 shares 
B)  2,300 shares 
C)  2,750 shares 
D)  3,650 shares 
E)  4,100 shares

Question 19

Firm A is planning on merging with Firm B. Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A. Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share. Firm B has 1,800 shares outstanding at a price of $15 a share. What is the value of the merged firm?

Accepted Answer

A)  $73,000 
B)  $75,000 
C)  $76,667 
D)  $77,778 
E)  $78,000 
A)  $73,000 
B)  $75,000 
C)  $76,667 
D)  $77,778 
E)  $78,000

Question 20

The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition.

Accepted Answer

A)  conglomerate 
B)  forward 
C)  backward 
D)  horizontal 
E)  vertical 
A)  conglomerate 
B)  forward 
C)  backward 
D)  horizontal 
E)  vertical

Exam 29: Mergers, Acquisitions, and Divestitures

Which one of the following combinations of firms would benefit the most through the use of complementary resources?

Firm V was worth $450 and Firm A had a market value of $375. Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925. What is the synergy from the merger of Firm V and Firm A?

A dissident group solicits votes in an attempt to replace existing management. This is called a:

Suppose that General Motors has made an offer to acquire General Mills. Ignoring potential antitrust problems,this merger would be classified as a:

A public offer by one firm to directly buy the shares of another firm is called a:

A financial device designed to make unfriendly takeover attempts financially unappealing,if not impossible,is called:

A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n):

Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

When a building supply store acquires a lumber mill it is making a ______ acquisition.

In a merger or acquisition,an asset should be acquired if it:

An attempt to gain control of a firm by soliciting a sufficient number of stockholder votes to replace the current board of directors is called a:

A reason for acquisitions is synergy. Synergy includes:

The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition.

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Financial Distress

International Corporate Finance

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