Question 1

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 2

Firm A's shareholders will be better off with a stock offer than with a cash offer if A makes too generous of an offer for Firm
B.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

World Enterprises is determined to report earnings per share of $2.67. It therefore acquires the Axle Company:

Accepted Answer

@#IMG-DLM& There are no gains from the merger. In

Question 5

The Williams Act in addition to state laws set forth the rules for tender offers.

Accepted Answer

A) True 
 B)False

Question 6

The value of the target firm's bonds tend to decrease when a leveraged buyout is announced.

Accepted Answer

A) True 
 B)False

Question 7

Which one 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 8

When a firm is taken over, its management is usually replaced.

Accepted Answer

A) True 
 B)False

Question 9

If investors believe a firm may be acquired, they may cause the true market value of the firm to be overstated by overvaluing the firm's shares.

Accepted Answer

A) True 
 B)False

Question 10

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 firm may capture all of the gains. 
C)  Merger costs 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 firm may capture all of the gains. 
C)  Merger costs should be negative after discounting. 
D) The merger's gain must also exceed its NPV.

Question 11

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 12

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 13

On average, stockholders in target firms earn higher returns from mergers than the acquiring firm's stockholders.

Accepted Answer

A) True 
 B)False

Question 14

Takeovers are often described as part of a broader market for corporate control.

Accepted Answer

A) True 
 B)False

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

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 17

Firms A and B are each currently 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 18

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

Accepted Answer

A) True 
 B)False

Question 19

The big savings from merging two banks would come from consolidating operations and eliminating redundant costs.

Accepted Answer

A) True 
 B)False

Question 20

Which one of the following is false 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.

Exam 21: Mergers, Acquisitions, and Corporate Control

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

Firm A's shareholders will be better off with a stock offer than with a cash offer if A makes too generous of an offer for Firm B.

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

World Enterprises is determined to report earnings per share of $2.67. It therefore acquires the Axle Company:

The Williams Act in addition to state laws set forth the rules for tender offers.

The value of the target firm's bonds tend to decrease when a leveraged buyout is announced.

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

When a firm is taken over, its management is usually replaced.

If investors believe a firm may be acquired, they may cause the true market value of the firm to be overstated by overvaluing the firm's shares.

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

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

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

On average, stockholders in target firms earn higher returns from mergers than the acquiring firm's stockholders.

Takeovers are often described as part of a broader market for corporate control.

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?

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

Firms A and B are each currently 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?

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

The big savings from merging two banks would come from consolidating operations and eliminating redundant costs.

Which one of the following is false concerning a proposed merger of firms?

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

International Financial Management

Options

Risk Management

Filters