Question 1

Which of the following is least likely to provide a motivation for vertical integration?

Accepted Answer

A)  A continuous source of raw materials 
B)  A desire to spread fixed costs across more output 
C)  Access to an efficient distribution channel 
D)  Acquisition of an established customer base 
A)  A continuous source of raw materials 
B)  A desire to spread fixed costs across more output 
C)  Access to an efficient distribution channel 
D)  Acquisition of an established customer base

Question 2

Briefly discuss some of the more logical reasons for mergers to occur.

Accepted Answer

The overriding reason for mergers to occ

Question 3

Economies of vertical integration are one possible source of synergy in mergers.

Accepted Answer

A) True 
 B)False

Question 4

By offering to buy shares directly from shareholders,the acquiring firm can bypass the target firm's management altogether.

Accepted Answer

A) True 
 B)False

Question 5

When two firms merge,the value of the acquiring firm will change by the:

Accepted Answer

A)  gain from the merger. 
B)  NPV minus the cost of the merger. 
C)  NPV of the merger. 
D)  cost of the merger. 
A)  gain from the merger. 
B)  NPV minus the cost of the merger. 
C)  NPV of the merger. 
D)  cost of the merger.

Question 6

A typical poison pill may give existing shareholders the right to buy the company's shares at half price as soon as a bidder acquires more than 15% of the shares.The bidder is not entitled to the discount.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

Carve-outs are similar to spin-offs except that shares in the new company are not given to existing stockholders but instead are sold in a public offering.

Accepted Answer

A) True 
 B)False

Question 9

Firm B's 1 million shares of stock currently sell for $20 each.Firm A estimates the economic gain from the merger to be $10 million and is prepared to offer $22 cash for each share of B.What percentage of the merger gain will be captured by firm B's shareholders?

Accepted Answer

A) 20.00% 
B) 33.33% 
C) 50.00% 
D) 60.00% 
A) 20.00% 
B) 33.33% 
C) 50.00% 
D) 60.00%

Question 10

Which of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

Accepted Answer

A)  There is no cash outflow. 
B)  It mitigates the effects of overvaluation of the target firm. 
C)  It mitigates the effects of undervaluation of the target firm. 
D)  It avoids dilution of shares. 
A)  There is no cash outflow. 
B)  It mitigates the effects of overvaluation of the target firm. 
C)  It mitigates the effects of undervaluation of the target firm. 
D)  It avoids dilution of shares.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

The free-cash-flow theory of takeovers predicts that:

Accepted Answer

A)  firms without free cash flow will become the most common LBOs. 
B)  firms with free cash flow will continue to be the acquirers. 
C)  firms with excess cash do not have a tendency to use it wisely. 
D)  all of these. 
A)  firms without free cash flow will become the most common LBOs. 
B)  firms with free cash flow will continue to be the acquirers. 
C)  firms with excess cash do not have a tendency to use it wisely. 
D)  all of these.

Question 13

Target firms frequently deter potential bidders by devising poison pills,which make the company unappetizing.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is correct concerning a spin-off?

Accepted Answer

A)  A division of a firm is reconstituted as a new firm. 
B)  An unprofitable division is divested. 
C)  A division of a firm is bought by its managers. 
D)  The spin-off generates no free cash flow. 
A)  A division of a firm is reconstituted as a new firm. 
B)  An unprofitable division is divested. 
C)  A division of a firm is bought by its managers. 
D)  The spin-off generates no free cash flow.

Question 15

On average,stockholders in target firms earn higher returns from mergers than stockholders from acquiring firms.

Accepted Answer

A) True 
 B)False

Question 16

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 17

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 18

What type of financing is typically instrumental in bringing about leveraged buyouts?

Accepted Answer

A)  Common-stock financing 
B)  Preferred-stock financing 
C)  Investment-grade bonds 
D)  Speculative-grade bonds 
A)  Common-stock financing 
B)  Preferred-stock financing 
C)  Investment-grade bonds 
D)  Speculative-grade bonds

Question 19

The most likely interpretation of headlines that read "ABC Corp.adopts shark repellent" is that:

Accepted Answer

A)  ABC wants to increase the difficulty of a takeover. 
B)  ABC has made a tender offer for the shares of another firm. 
C)  ABC will merge only with small-sized partners. 
D)  ABC Corp. desires to reduce the costs of being acquired. 
A)  ABC wants to increase the difficulty of a takeover. 
B)  ABC has made a tender offer for the shares of another firm. 
C)  ABC will merge only with small-sized partners. 
D)  ABC Corp. desires to reduce the costs of being acquired.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 21: Mergers, Acquisitions, and Corporate Control

Which of the following is least likely to provide a motivation for vertical integration?

Briefly discuss some of the more logical reasons for mergers to occur.

Economies of vertical integration are one possible source of synergy in mergers.

By offering to buy shares directly from shareholders,the acquiring firm can bypass the target firm's management altogether.

When two firms merge,the value of the acquiring firm will change by the:

A typical poison pill may give existing shareholders the right to buy the company's shares at half price as soon as a bidder acquires more than 15% of the shares.The bidder is not entitled to the discount.

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

Carve-outs are similar to spin-offs except that shares in the new company are not given to existing stockholders but instead are sold in a public offering.

Firm B's 1 million shares of stock currently sell for $20 each.Firm A estimates the economic gain from the merger to be $10 million and is prepared to offer $22 cash for each share of B.What percentage of the merger gain will be captured by firm B's shareholders?

Which of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

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

The free-cash-flow theory of takeovers predicts that:

Target firms frequently deter potential bidders by devising poison pills,which make the company unappetizing.

Which of the following is correct concerning a spin-off?

On average,stockholders in target firms earn higher returns from mergers than stockholders from acquiring firms.

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

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

What type of financing is typically instrumental in bringing about leveraged buyouts?

The most likely interpretation of headlines that read "ABC Corp.adopts shark repellent" is that:

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

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

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Risk Management

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