Question 1

If Paul's Hardware were to acquire Suburban Hardware,the acquisition would be classified as a _____ acquisition.

Accepted Answer

A) horizontal 
B) longitudinal 
C) conglomerate 
D) vertical 
E) integrated 
A) horizontal 
B) longitudinal 
C) conglomerate 
D) vertical 
E) integrated

Question 2

Firm B is being acquired by Firm A for $162,000 worth of Firm A stock.The incremental value of the acquisition is $4,600.Firm A has 8,500 shares of stock outstanding at a price of $36 a share.Firm B has 5,900 shares of stock outstanding at a price of $27 a share.What is the value per share of Firm A after the acquisition?

Accepted Answer

A) $35.28 
B) $35.71 
C) $36.00 
D) $36.15 
E) $37.04 
A) $35.28 
B) $35.71 
C) $36.00 
D) $36.15 
E) $37.04

Question 3

Which one of the following statements is correct?

Accepted Answer

A) A spin-off frequently follows an equity carve-out. 
B) A split-up frequently follows a spin-off. 
C) An equity carve-out is a specific type of acquisition. 
D) A spin-off involves an initial public offering. 
E) A divestiture means that the original firm ceases to exist. 
A) A spin-off frequently follows an equity carve-out. 
B) A split-up frequently follows a spin-off. 
C) An equity carve-out is a specific type of acquisition. 
D) A spin-off involves an initial public offering. 
E) A divestiture means that the original firm ceases to exist.

Question 4

If General Electric,a highly diversified company,were to acquire Ocean Freight Limited,the acquisition would be classified as a _____ acquisition.

Accepted Answer

A) horizontal 
B) longitudinal 
C) conglomerate 
D) vertical 
E) integrated 
A) horizontal 
B) longitudinal 
C) conglomerate 
D) vertical 
E) integrated

Question 5

Taylor's Hardware is acquiring The Corner Store for $25,000 in cash.Taylor's has 1,500 shares of stock outstanding at a market value of $46 a share.The Corner Store has 2,200 shares of stock outstanding at a market price of $8 a share.Neither firm has any debt.The incremental value of the acquisition is $3,500.What is the value of Taylor's Hardware after the acquisition?

Accepted Answer

A) $49,000 
B) $50,300 
C) $57,300 
D) $65,100 
E) $72,400 
A) $49,000 
B) $50,300 
C) $57,300 
D) $65,100 
E) $72,400

Question 6

Assume the shareholders of a target firm benefit from being acquired in a stock transaction.Given this,these shareholders are most apt to realize the largest benefit if the:

Accepted Answer

A) acquiring firm has the better management team and replaces the target firm's managers. 
B) management of the target firm is more efficient than the management of the acquiring firm which replaces them. 
C) management of both the acquiring firm and the target firm are as equivalent as possible. 
D) current management team of the target firm is kept in place even though the managers of the acquiring firm are more suited to manage the target firm's situation. 
E) current management team of the target firm is technologically knowledgeable but yet ineffective. 
A) acquiring firm has the better management team and replaces the target firm's managers. 
B) management of the target firm is more efficient than the management of the acquiring firm which replaces them. 
C) management of both the acquiring firm and the target firm are as equivalent as possible. 
D) current management team of the target firm is kept in place even though the managers of the acquiring firm are more suited to manage the target firm's situation. 
E) current management team of the target firm is technologically knowledgeable but yet ineffective.

Question 7

Moore Industries has agreed to be acquired by Scott Enterprises for $22,000 worth of Scott Enterprises stock.Scott Enterprises currently has 7,500 shares of stock outstanding at a price of $28 a share.Moore Industries has 1,800 shares outstanding at a price of $12 a share.The incremental value of the acquisition is $1,100.What is the value per share of Scott Enterprises stock after the acquisition?

Accepted Answer

A) $27.52 
B) $27.96 
C) $28.08 
D) $28.47 
E) $31.03 
A) $27.52 
B) $27.96 
C) $28.08 
D) $28.47 
E) $31.03

Question 8

Outdoor Living has agreed to be acquired by New Adventures for $48,000 worth of New Adventures stock.New Adventures currently has 8,000 shares of stock outstanding at a price of $32 a share.Outdoor Living has 1,700 shares outstanding at a price of $43 a share.The incremental value of the acquisition is $21,000.What is the value of the merged firm?

Accepted Answer

A) $85,500 
B) $256,000 
C) $277,000 
D) $320,500 
E) $350,100 
A) $85,500 
B) $256,000 
C) $277,000 
D) $320,500 
E) $350,100

Question 9

Roger is a major shareholder in RB Industrial Supply.Currently,Roger is quite unhappy with the direction the firm is headed and is rumored to be considering an attempt to take over the firm by soliciting the votes of other shareholders.To head off this potential attempt,the board of RB Industrial Supply has decided to offer Roger $35 a share for all the shares he owns in the firm.The current market value per share is $32.This offer to purchase Roger's shares is commonly referred to as:

Accepted Answer

A) a golden parachute. 
B) standstill payments. 
C) greenmail. 
D) a poison pill. 
E) a white knight. 
A) a golden parachute. 
B) standstill payments. 
C) greenmail. 
D) a poison pill. 
E) a white knight.

Question 10

Princeton Enterprises is a diversified company.In addition to its primary business operations,the firm is also the sole shareholder of a wholly owned subsidiary.As part of its restructuring plan,Princeton has decided to implement an IPO offering for shares in the subsidiary.This offering is equivalent to a 25 percent ownership stake in the subsidiary.What is the distribution of these shares called?

Accepted Answer

A) split-up 
B) equity carve-out 
C) countertender offer 
D) white knight transaction 
E) lockup transaction 
A) split-up 
B) equity carve-out 
C) countertender offer 
D) white knight transaction 
E) lockup transaction

Question 11

A potential merger which produces synergy:

Accepted Answer

A) should be rejected due to the projected negative cash flows. 
B) should be rejected because the synergy will dilute the benefits of the merger. 
C) has a net present value of zero. 
D) creates value and therefore should be pursued. 
E) reduces the anticipated net income from the target firm. 
A) should be rejected due to the projected negative cash flows. 
B) should be rejected because the synergy will dilute the benefits of the merger. 
C) has a net present value of zero. 
D) creates value and therefore should be pursued. 
E) reduces the anticipated net income from the target firm.

Question 12

Some Freight Line Express shareholders are very dissatisfied with the performance of the firm's current management team.These shareholders want to gain control of the board of directors so they can have the power to oust current management.As a means of gaining control,these shareholders have select candidates for all of the open positions on the firm's board of directors.Since they have insufficient votes to guarantee the election of these individuals,they are contacting other shareholders and asking them to vote with them on this important matter.Of course,the current management team is encouraging shareholders to vote for their candidates for the board.Which one of the following terms is best illustrated by this situation?

Accepted Answer

A) tender offer 
B) proxy contest 
C) going-private transaction 
D) leveraged buyout 
E) consolidation 
A) tender offer 
B) proxy contest 
C) going-private transaction 
D) leveraged buyout 
E) consolidation

Question 13

The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation.Information about each firm is given here:   Jolie's shareholders will receive one share of Pitt stock for every three shares they hold in Jolie.Assume the NPV of the acquisition is zero.What will the post-merger PE ratio be for Pitt?

Accepted Answer

A) 8.4 
B) 9.2 
C) 9.8 
D) 10.5 
E) 11.2 
A) 8.4 
B) 9.2 
C) 9.8 
D) 10.5 
E) 11.2

Question 14

Silver Enterprises has acquired All Gold Mining in a merger transaction.The following balance sheets represent the premerger book values for both firms.   Assume the merger is treated as a pooling of interests for accounting purposes.The total assets are _____ and the total equity is _____ on the post-merger balance sheet.

Accepted Answer

A) $24,500; $10,500 
B) $24,500; $18,200 
C) $26,300; $10,500 
D) $26,300; $16,600 
E) $27,500; $19,400 
A) $24,500; $10,500 
B) $24,500; $18,200 
C) $26,300; $10,500 
D) $26,300; $16,600 
E) $27,500; $19,400

Question 15

Rosie's has 1,800 shares outstanding at a market price per share of $23.50.Sandy's has 2,500 shares outstanding at a market price of $21 a share.Neither firm has any debt.Sandy's is acquiring Rosie's.The incremental value of the acquisition is $1,200.What is the value of Rosie's to Sandy's?

Accepted Answer

A) $41,100 
B) $41,900 
C) $42,300 
D) $42,700 
E) $43,500 
A) $41,100 
B) $41,900 
C) $42,300 
D) $42,700 
E) $43,500

Question 16

An acquisition completed simply to diversify a firm will:

Accepted Answer

A) create excessive synergy in almost all situations. 
B) lower systematic risk and increase the value of the firm. 
C) benefit the firm by eliminating unsystematic risk. 
D) benefit the shareholders by providing otherwise unobtainable diversification. 
E) generally not add any value to the firm. 
A) create excessive synergy in almost all situations. 
B) lower systematic risk and increase the value of the firm. 
C) benefit the firm by eliminating unsystematic risk. 
D) benefit the shareholders by providing otherwise unobtainable diversification. 
E) generally not add any value to the firm.

Question 17

If a firm sells its crown jewels when threatened with a takeover attempt,the firm is employing a strategy commonly referred to as a _____ strategy.

Accepted Answer

A) scorched earth 
B) shark repellent 
C) bear hug 
D) white knight 
E) lockup 
A) scorched earth 
B) shark repellent 
C) bear hug 
D) white knight 
E) lockup

Question 18

When evaluating an acquisition you should:

Accepted Answer

A) concentrate on book values and ignore market values. 
B) focus on the total cash flows of the merged firm. 
C) apply the rate of return that is relevant to the incremental cash flows. 
D) ignore any one-time acquisition fees or transaction costs. 
E) ignore any potential changes in management. 
A) concentrate on book values and ignore market values. 
B) focus on the total cash flows of the merged firm. 
C) apply the rate of return that is relevant to the incremental cash flows. 
D) ignore any one-time acquisition fees or transaction costs. 
E) ignore any potential changes in management.

Question 19

Hanover Tires is being acquired by Better Tires for $89,000 worth of Better Tires stock.Hanover Tires has 2,500 shares of stock outstanding at a price of $36 a share.Better Tires has 6,000 shares outstanding with a market value of $23 a share.The incremental value of the acquisition is $4,200.How many new shares of stock will be issued to complete this acquisition?

Accepted Answer

A) 2,472 shares 
B) 3,016 shares 
C) 3,133 shares 
D) 3,870 shares 
E) 3,987 shares 
A) 2,472 shares 
B) 3,016 shares 
C) 3,133 shares 
D) 3,870 shares 
E) 3,987 shares

Question 20

Penn Corp.is analyzing the possible acquisition of Teller Company.Both firms have no debt.Penn believes the acquisition will increase its total aftertax annual cash flows by $3.7 million indefinitely.The current market value of Teller is $103 million,and that of Penn is $151.7 million.The appropriate discount rate for the incremental cash flows is 9 percent.Penn is trying to decide whether it should offer 40 percent of its stock of $127 million in cash to Teller's shareholders.The cost of the cash alternative is _____,while the cost of the stock alternative is _____.

Accepted Answer

A) $103,000,000; $118,324,444 
B) $103,000,000; $127,000,000 
C) $127,000,000; $103,000,000 
D) $127,000,000; $118,324,444 
E) $236,000,000; $103,000,000 
A) $103,000,000; $118,324,444 
B) $103,000,000; $127,000,000 
C) $127,000,000; $103,000,000 
D) $127,000,000; $118,324,444 
E) $236,000,000; $103,000,000

If Paul's Hardware were to acquire Suburban Hardware,the acquisition would be classified as a _____ acquisition.

Which one of the following statements is correct?

If General Electric,a highly diversified company,were to acquire Ocean Freight Limited,the acquisition would be classified as a _____ acquisition.

Assume the shareholders of a target firm benefit from being acquired in a stock transaction.Given this,these shareholders are most apt to realize the largest benefit if the:

A potential merger which produces synergy:

Rosie's has 1,800 shares outstanding at a market price per share of $23.50.Sandy's has 2,500 shares outstanding at a market price of $21 a share.Neither firm has any debt.Sandy's is acquiring Rosie's.The incremental value of the acquisition is $1,200.What is the value of Rosie's to Sandy's?

An acquisition completed simply to diversify a firm will:

If a firm sells its crown jewels when threatened with a takeover attempt,the firm is employing a strategy commonly referred to as a _____ strategy.

When evaluating an acquisition you should:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Leasing

Filters

Exam 26: Mergers and Acquisitions

If Paul's Hardware were to acquire Suburban Hardware,the acquisition would be classified as a _____ acquisition.

Which one of the following statements is correct?

If General Electric,a highly diversified company,were to acquire Ocean Freight Limited,the acquisition would be classified as a _____ acquisition.

Assume the shareholders of a target firm benefit from being acquired in a stock transaction.Given this,these shareholders are most apt to realize the largest benefit if the:

A potential merger which produces synergy:

Rosie's has 1,800 shares outstanding at a market price per share of $23.50.Sandy's has 2,500 shares outstanding at a market price of $21 a share.Neither firm has any debt.Sandy's is acquiring Rosie's.The incremental value of the acquisition is $1,200.What is the value of Rosie's to Sandy's?

An acquisition completed simply to diversify a firm will:

If a firm sells its crown jewels when threatened with a takeover attempt,the firm is employing a strategy commonly referred to as a _____ strategy.

When evaluating an acquisition you should:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Leasing

Filters