Question 1

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 2

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

Accepted Answer

A)  Its shares are no longer 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 no longer traded publicly. 
B)  Its capital is mostly equity financed. 
C)  Its shares are not traded publicly. 
D)  It has a larger shareholder base.

Question 3

Which one 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 4

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 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

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

Accepted Answer

A)  without free cash flow will become the most common LBOs. 
B)  with free cash flow will continue to be the acquirers. 
C)  with excess cash do not have a tendency to use it wisely. 
D)  with excess cash tend to have the most carve-outs. 
A)  without free cash flow will become the most common LBOs. 
B)  with free cash flow will continue to be the acquirers. 
C)  with excess cash do not have a tendency to use it wisely. 
D)  with excess cash tend to have the most carve-outs.

Question 7

Empirical studies show that the operating efficiency of firms having undergone a leverage buyout ______ over the following 3 years.

Accepted Answer

A)  increases 
B)  decreases 
C)  does not change 
D)  shows no clear trend 
A)  increases 
B)  decreases 
C)  does not change 
D)  shows no clear trend

Question 8

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 given the opportunity to sell their shares to a would-be acquirer. 
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 given the opportunity to sell their shares to a would-be acquirer. 
D)  management offers to buy all outstanding shares of the corporation.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

A conglomerate merger occurs when:

Accepted Answer

A)  both partners are large in size. 
B)  large synergies are expected to develop. 
C)  firms from different industries merge. 
D)  both management teams remain intact after the merger. 
A)  both partners are large in size. 
B)  large synergies are expected to develop. 
C)  firms from different industries merge. 
D)  both management teams remain intact after the merger.

Question 11

One motive for acquiring a firm is to stop wastage of the target firm's cash reserves.

Accepted Answer

A) True 
 B)False

Question 12

A public offer to purchase the shares of existing stockholders in order to take the firm over is called a:

Accepted Answer

A)  tender offer. 
B)  carve-out. 
C)  spin-off. 
D)  divestiture. 
A)  tender offer. 
B)  carve-out. 
C)  spin-off. 
D)  divestiture.

Question 13

If two merged firms are shown to have a higher combined market value than the sum of their individual market values,then:

Accepted Answer

A)  there are economic gains. 
B)  the firms were previously underpriced. 
C)  the merger provides diversification to investors. 
D)  there is no cost involved in the merger. 
A)  there are economic gains. 
B)  the firms were previously underpriced. 
C)  the merger provides diversification to investors. 
D)  there is no cost involved in the merger.

Question 14

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

Accepted Answer

A)  conglomerate. 
B)  leveraged buyout. 
C)  horizontal merger. 
D)  vertical merger. 
A)  conglomerate. 
B)  leveraged buyout. 
C)  horizontal merger. 
D)  vertical merger.

Question 15

Cross-border mergers are often motivated by tax considerations.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  tender offer. 
B)  greenmail offer. 
C)  buyout. 
D)  hostile takeover. 
A)  tender offer. 
B)  greenmail offer. 
C)  buyout. 
D)  hostile takeover.

Question 17

One of the reasons why proxy fights are often unsuccessful is that:

Accepted Answer

A)  management is always viewed as performing its job well. 
B)  management can use corporate resources to defend against the fight. 
C)  mergers are a cheaper form of changing management. 
D)  shareholders are unconcerned with corporate management. 
A)  management is always viewed as performing its job well. 
B)  management can use corporate resources to defend against the fight. 
C)  mergers are a cheaper form of changing management. 
D)  shareholders are unconcerned with corporate management.

Question 18

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 19

If a segment of a business is unrelated to the rest of the firm's activities,that segment is more likely to be spun off or carved out.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 21: Mergers,Acquisitions,and Corporate Control

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

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

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

A spinoff is an action in which:

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

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

Empirical studies show that the operating efficiency of firms having undergone a leverage buyout ______ over the following 3 years.

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

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

A conglomerate merger occurs when:

One motive for acquiring a firm is to stop wastage of the target firm's cash reserves.

A public offer to purchase the shares of existing stockholders in order to take the firm over is called a:

If two merged firms are shown to have a higher combined market value than the sum of their individual market values,then:

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

Cross-border mergers are often motivated by tax considerations.

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

One of the reasons why proxy fights are often unsuccessful is that:

Conglomerate mergers involve companies in:

If a segment of a business is unrelated to the rest of the firm's activities,that segment is more likely to be spun off or carved out.

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

Goals and Governance of the Firm

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 and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

International Financial Management

Options

Risk Management

Filters