Question 1

One indication that investors expect no synergy from a merger would be that:

Accepted Answer

A)  total market value of the merged firms does not change. 
B)  the P/E ratio of the merged firms changes. 
C)  the acquiring firm financed the merger with cash. 
D)  the merged firms are from different industries. 
A)  total market value of the merged firms does not change. 
B)  the P/E ratio of the merged firms changes. 
C)  the acquiring firm financed the merger with cash. 
D)  the merged firms are from different industries.

Question 2

Instead of selling part of its operations,companies sometimes spin off a business by separating it from the parent firm and distributing to its shareholders the stock in the newly independent company.

Accepted Answer

A) True 
 B)False

Question 3

Mergers may provide reductions in average production cost as a result of:

Accepted Answer

A)  increased market share. 
B)  a more efficient management. 
C)  economies of scale. 
D)  diversification. 
A)  increased market share. 
B)  a more efficient management. 
C)  economies of scale. 
D)  diversification.

Question 4

A tender offer is an attempt by outsiders to buy the stock of the target firm's shareholders with the help of the target firm's managers.

Accepted Answer

A) True 
 B)False

Question 5

The shareholders of firm A have offered 1 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 firm A absorb all additional "cost." 
D) Firm 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 firm A absorb all additional "cost." 
D) Firm A's stockholders are better off than if the merger were cash financed for $10 million.

Question 6

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 7

In June 2003 Oracle Corp announced a $5.1 billion cash tender offer for its rival PeopleSoft.

Accepted Answer

A) True 
 B)False

Question 8

Strictly speaking,the purchase of the stock or assets of another firm is an acquisition.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not correct 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.

Question 10

The cost of a merger equals the:

Accepted Answer

A)  cash paid for the target firm. 
B)  increase in total earnings less 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 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 11

ABC Corp.has offered 1 million shares having a total market value of $8 million for XYZ Corp.After the merger is announced,shares in ABC trade for $7 each.If ABC is confident about XYZ's value,what has happened to the cost of the merger?

Accepted Answer

A)  It increases by $1 million. 
B)  It decreases by $1 million. 
C)  It increases by $9 million. 
D)  It remains constant. 
A)  It increases by $1 million. 
B)  It decreases by $1 million. 
C)  It increases by $9 million. 
D)  It remains constant.

Question 12

If Snapper Lawnmowers were to acquire Briggs and Stratton (gasoline-powered engines),the merger would be:

Accepted Answer

A)  a conglomerate. 
B)  a divestiture. 
C)  horizontal. 
D)  vertical. 
A)  a conglomerate. 
B)  a divestiture. 
C)  horizontal. 
D)  vertical.

Question 13

In what ways can companies change the composition of their ownership or management?

Accepted Answer

If the board of directors fails to repla

Question 14

In mergers financed by cash,the merger cost is not affected by the size of the merger gain.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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

Accepted Answer

A) True 
 B)False

Question 17

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 18

What are the common motivations for leveraged and management buyouts of the firm?

Accepted Answer

In a leveraged buyout (LBO)or management

Question 19

When shareholders attempt to garner additional votes in an attempt to oust management,it is called a:

Accepted Answer

A)  management buyout. 
B)  tender offer. 
C)  proxy contest. 
D)  poison pill. 
A)  management buyout. 
B)  tender offer. 
C)  proxy contest. 
D)  poison pill.

Question 20

An economic gain is derived from mergers when two firms are worth more combined than separate.

Accepted Answer

A) True 
 B)False

Exam 21: Mergers, Acquisitions, and Corporate Control

One indication that investors expect no synergy from a merger would be that:

Instead of selling part of its operations,companies sometimes spin off a business by separating it from the parent firm and distributing to its shareholders the stock in the newly independent company.

Mergers may provide reductions in average production cost as a result of:

A tender offer is an attempt by outsiders to buy the stock of the target firm's shareholders with the help of the target firm's managers.

The shareholders of firm A have offered 1 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?

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

In June 2003 Oracle Corp announced a $5.1 billion cash tender offer for its rival PeopleSoft.

Strictly speaking,the purchase of the stock or assets of another firm is an acquisition.

Which of the following is not correct concerning a proposed merger of firms?

The cost of a merger equals the:

ABC Corp.has offered 1 million shares having a total market value of $8 million for XYZ Corp.After the merger is announced,shares in ABC trade for $7 each.If ABC is confident about XYZ's value,what has happened to the cost of the merger?

If Snapper Lawnmowers were to acquire Briggs and Stratton (gasoline-powered engines),the merger would be:

In what ways can companies change the composition of their ownership or management?

In mergers financed by cash,the merger cost is not affected by the size of the merger gain.

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

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

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?

What are the common motivations for leveraged and management buyouts of the firm?

When shareholders attempt to garner additional votes in an attempt to oust management,it is called a:

An economic gain is derived from mergers when two firms are worth more combined than separate.

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

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Risk, Return, and Capital Budgeting

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