Question 1

In which merger type would one be least likely to observe economies of scale?

Accepted Answer

A)  Horizontal 
B)  Vertical 
C)  Conglomerate 
D)  All of these 
A)  Horizontal 
B)  Vertical 
C)  Conglomerate 
D)  All of these

Question 2

When one firm merges with another,the:

Accepted Answer

A)  boards of directors will merge also. 
B)  merger must be approved by 75% of the shareholders of the target firm. 
C)  merger must be approved by at least 50% of the shareholders of the target firm. 
D)  target firm will cease to exist. 
A)  boards of directors will merge also. 
B)  merger must be approved by 75% of the shareholders of the target firm. 
C)  merger must be approved by at least 50% of the shareholders of the target firm. 
D)  target firm will cease to exist.

Question 3

In the case of a merger that is stock financed,the assumed merger cost may be incorrect if the:

Accepted Answer

A)  value of the acquired firm's shares changes after the merger announcement. 
B)  value of the acquiring firm's shares changes after the merger announcement. 
C)  long-term interest rates increase. 
D)  merger is either horizontal or vertical. 
A)  value of the acquired firm's shares changes after the merger announcement. 
B)  value of the acquiring firm's shares changes after the merger announcement. 
C)  long-term interest rates increase. 
D)  merger is either horizontal or vertical.

Question 4

When an outside group acquires a firm,primarily through the use of borrowed funds,the acquisition is known as a:

Accepted Answer

A)  management buyout. 
B)  tender offer. 
C)  leveraged buyout. 
D)  successful proxy fight. 
A)  management buyout. 
B)  tender offer. 
C)  leveraged buyout. 
D)  successful proxy fight.

Question 5

The "Bootstrap Game" is played somewhat in defiance of traditional merger logic in that it:

Accepted Answer

A)  provides immediate benefit through improved management. 
B)  does not offer a positive NPV from the merger. 
C)  stays in effect only until EPS are increased. 
D)  does not require the approval of a majority of shareholders. 
A)  provides immediate benefit through improved management. 
B)  does not offer a positive NPV from the merger. 
C)  stays in effect only until EPS are increased. 
D)  does not require the approval of a majority of shareholders.

Question 6

If an automobile manufacturer were to acquire one of the firms listed below,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 7

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 8

One common explanation for the success of MBOs is the incentive effect of leverage.Explain.

Accepted Answer

In an MBO the management becomes the equ

Question 9

Which of the following statements seems most correct about a firm that has made a cash tender offer for 2 million shares of ABC Corp.at a price of $20,which is $6 higher than ABC's current value?

Accepted Answer

A)  The economic gain of the merger exceeds $40 million. 
B)  The economic gain of the merger exceeds $28 million. 
C)  The economic gain of the merger exceeds $12 million. 
D)  The economic gain of the merger would be zero after accounting for merger cost. 
A)  The economic gain of the merger exceeds $40 million. 
B)  The economic gain of the merger exceeds $28 million. 
C)  The economic gain of the merger exceeds $12 million. 
D)  The economic gain of the merger would be zero after accounting for merger cost.

Question 10

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 11

In vertical mergers,the goal is to benefit from the economies of scale.

Accepted Answer

A) True 
 B)False

Question 12

Conglomerate mergers involve companies in:

Accepted Answer

A)  similar lines of business. 
B)  different stages of the corporate life cycle. 
C)  unrelated lines of business. 
D)  different countries. 
A)  similar lines of business. 
B)  different stages of the corporate life cycle. 
C)  unrelated lines of business. 
D)  different countries.

Question 13

Firm B's 1 million shares of stock currently sell for $12 each,but firm A is preparing an $18 per share tender offer.Firm A estimates the gain of the merger to be $6 million.What percentage of the merger gains will be captured by firm B's stockholders?

Accepted Answer

A)  33.33% 
B)  50.00% 
C)  66.67% 
D)  75.00% 
A)  33.33% 
B)  50.00% 
C)  66.67% 
D)  75.00%

Question 14

Energetic,Inc.believes that it can acquire Satisfied Industries and improve efficiency to the extent that the market value of Satisfied will increase by $5 million.Satisfied currently sells for $20 a share,and there are 1 million shares outstanding.
a.Satisfied's management is willing to accept a cash offer of $25 a share.Can the merger be accomplished on a friendly basis?
b.What will happen if Satisfied's management holds out for an offer of $28 a share?

Accepted Answer

a.At a price of $25 per share,Energetic

Question 15

According to the free-cash-flow theory of takeovers,postmerger gains in market value represent:

Accepted Answer

A)  an illogical assessment of earnings prospects. 
B)  the remaining costs of the merger. 
C)  the present value of free cash flow that will no longer be misused. 
D)  losses experienced by arbitrageurs and other speculators. 
A)  an illogical assessment of earnings prospects. 
B)  the remaining costs of the merger. 
C)  the present value of free cash flow that will no longer be misused. 
D)  losses experienced by arbitrageurs and other speculators.

Question 16

Nine years after acquiring Chrysler,Daimler paid a leveraged buyout firm $677 million to take Chrysler off its hands.

Accepted Answer

A) True 
 B)False

Question 17

Vertical integration has fallen out of fashion recently.

Accepted Answer

A) True 
 B)False

Question 18

In which of the following ways can the management teams of many corporations influence the board of directors?

Accepted Answer

A)  By merging with another firm 
B)  Through appointment of shareholders to replace current board members 
C)  Through management's nomination of board candidates 
D)  By declaring a liquidating cash dividend 
A)  By merging with another firm 
B)  Through appointment of shareholders to replace current board members 
C)  Through management's nomination of board candidates 
D)  By declaring a liquidating cash dividend

Question 19

What type of investors will now have proxy access to nominate their own candidates for the board of directors?

Accepted Answer

A)  Shareholders who hold at least 3% ownership for at least 5 years 
B)  Shareholders of any size who have held shares for at least 5 years 
C)  Shareholders who hold at least 3% ownership for at least 2 years 
D)  Nonprofit institutional investors 
A)  Shareholders who hold at least 3% ownership for at least 5 years 
B)  Shareholders of any size who have held shares for at least 5 years 
C)  Shareholders who hold at least 3% ownership for at least 2 years 
D)  Nonprofit institutional investors

Question 20

Realizing the benefits of merger is easier when the merging companies:

Accepted Answer

A)  have different computer systems. 
B)  have different pay structures. 
C)  have different resources. 
D)  have different company cultures. 
A)  have different computer systems. 
B)  have different pay structures. 
C)  have different resources. 
D)  have different company cultures.

Exam 21: Mergers, Acquisitions, and Corporate Control

In which merger type would one be least likely to observe economies of scale?

When one firm merges with another,the:

In the case of a merger that is stock financed,the assumed merger cost may be incorrect if the:

When an outside group acquires a firm,primarily through the use of borrowed funds,the acquisition is known as a:

The "Bootstrap Game" is played somewhat in defiance of traditional merger logic in that it:

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

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

One common explanation for the success of MBOs is the incentive effect of leverage.Explain.

Which of the following statements seems most correct about a firm that has made a cash tender offer for 2 million shares of ABC Corp.at a price of $20,which is $6 higher than ABC's current value?

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

In vertical mergers,the goal is to benefit from the economies of scale.

Conglomerate mergers involve companies in:

Firm B's 1 million shares of stock currently sell for $12 each,but firm A is preparing an $18 per share tender offer.Firm A estimates the gain of the merger to be $6 million.What percentage of the merger gains will be captured by firm B's stockholders?

According to the free-cash-flow theory of takeovers,postmerger gains in market value represent:

Nine years after acquiring Chrysler,Daimler paid a leveraged buyout firm $677 million to take Chrysler off its hands.

Vertical integration has fallen out of fashion recently.

In which of the following ways can the management teams of many corporations influence the board of directors?

What type of investors will now have proxy access to nominate their own candidates for the board of directors?

Realizing the benefits of merger is easier when the merging companies:

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