Question 1

Why might shareholders of an acquiring firm prefer to finance mergers with stock rather than with cash?

Accepted Answer

A)  Stock financing is always less costly due to tax consequences. 
B)  EPS fall when mergers are financed with cash. 
C)  Target-firm shareholders will bear part of the cost if merger benefits were overestimated. 
D)  All merger gains go to the acquirer when financed with stock. 
A)  Stock financing is always less costly due to tax consequences. 
B)  EPS fall when mergers are financed with cash. 
C)  Target-firm shareholders will bear part of the cost if merger benefits were overestimated. 
D)  All merger gains go to the acquirer when financed with stock.

Question 2

In 2010,how has the dynamic of the proxy contest changed?

Accepted Answer

In 2010,the SEC adopted a new rule that

Question 3

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 4

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

Question 5

A spinoff is an action in which:

Accepted Answer

A)  the management bids for and acquires the firm. 
B)  one firm issues stock to acquire another firm. 
C)  successful product lines are sold to competitors. 
D)  a portion of the firm's assets is sold off to form a new company. 
A)  the management bids for and acquires the firm. 
B)  one firm issues stock to acquire another firm. 
C)  successful product lines are sold to competitors. 
D)  a portion of the firm's assets is sold off to form a new company.

Question 6

In 2005 China National Offshore Oil Corporation (CNOOC)felt obliged to withdraw its bid for Unocal,after what is described as "unprecedented political opposition" in Congress.

Accepted Answer

A) True 
 B)False

Question 7

Carve-outs are synonyms of spin-offs in the market of corporate control.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Which of the following is not a takeover defense?

Accepted Answer

A)  Shark repellant 
B)  Poison pill 
C)  White knight 
D)  Proxy contest 
A)  Shark repellant 
B)  Poison pill 
C)  White knight 
D)  Proxy contest

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

How should the gains and costs of mergers to the acquiring firm be measured?

Accepted Answer

A merger generates an economic gain if t

Question 12

An increase in earnings per share after a merger may not indicate increased value if the:

Accepted Answer

A)  number of shares has increased. 
B)  price of the acquirer's stock increases. 
C)  price-earnings ratios were different in the premerger firms. 
D)  firm's additional earnings are spent on legal expenses of the merger. 
A)  number of shares has increased. 
B)  price of the acquirer's stock increases. 
C)  price-earnings ratios were different in the premerger firms. 
D)  firm's additional earnings are spent on legal expenses of the merger.

Question 13

The proliferation of junk bonds in the 1980s greatly increased the feasibility of LBOs.

Accepted Answer

A) True 
 B)False

Question 14

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 15

In high-tech industries an acrimonious takeover battle may cause many of the target's most valued staff to leave.

Accepted Answer

A) True 
 B)False

Question 16

A merger must have the approval of at least 51% of the shareholders of each firm.

Accepted Answer

A) True 
 B)False

Question 17

The track record for proxy fights suggests they are:

Accepted Answer

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

Question 18

GrowFast currently sells at a price-earnings multiple of 10.The firm has 2 million shares outstanding,and sells at a price per share of $40.Steady & Stable has a P/E multiple of 8,has 1 million shares outstanding,and sells at a price per share of $20.
a.If GrowFast acquires the other firm by exchanging one of its shares for every two of Steady & Stable's,what will be the earnings per share of the merged firm?
b.If the merger has no economic gain,what will be the P/E of the new firm? What will happen to GrowFast's price per share? Will any of the shareholders experience a change in wealth?
c.What will happen to GrowFast's price per share if the market does not realize that the P/E ratio of the merged firm ought to differ from GrowFast's premerger ratio? Who gains and by how much in this case?

Accepted Answer

@#IMG-DLM& * EPS = Price divided by P/E ratio
** E

Question 19

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

Question 20

Who is (are)typically the primary beneficiary(ies)in a merger?

Accepted Answer

While there are certainly exceptions to

Exam 21: Mergers, Acquisitions, and Corporate Control

Why might shareholders of an acquiring firm prefer to finance mergers with stock rather than with cash?

In 2010,how has the dynamic of the proxy contest changed?

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

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

A spinoff is an action in which:

In 2005 China National Offshore Oil Corporation (CNOOC)felt obliged to withdraw its bid for Unocal,after what is described as "unprecedented political opposition" in Congress.

Carve-outs are synonyms of spin-offs in the market of corporate control.

Diversification is often a poor motive for mergers because:

Which of the following is not a takeover defense?

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

How should the gains and costs of mergers to the acquiring firm be measured?

An increase in earnings per share after a merger may not indicate increased value if the:

The proliferation of junk bonds in the 1980s greatly increased the feasibility of LBOs.

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

In high-tech industries an acrimonious takeover battle may cause many of the target's most valued staff to leave.

A merger must have the approval of at least 51% of the shareholders of each firm.

The track record for proxy fights suggests they are:

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

Who is (are)typically the primary beneficiary(ies)in a merger?

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

Risk, Return, and Capital Budgeting

International Financial Management

Options

Risk Management

Filters