Question 1

A key reason for acquisitions is synergy.Synergy includes all the following except:

Accepted Answer

A) revenue enhancements. 
B) cost reductions. 
C) increased debt capacity. 
D) decreased cash flows. 
E) increased efficiency. 
A) revenue enhancements. 
B) cost reductions. 
C) increased debt capacity. 
D) decreased cash flows. 
E) increased efficiency. D

Question 2

If Microsoft were to acquire an airline,the acquisition would be classified as a ________ acquisition.

Accepted Answer

A) horizontal 
B) longitudinal 
C) conglomerate 
D) vertical 
E) complementary resources 
A) horizontal 
B) longitudinal 
C) conglomerate 
D) vertical 
E) complementary resources C

Question 3

Firm A is planning on merging with Firm B.Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A because no synergy will be created.Firm A currently has 3,000 shares of stock outstanding at a market price of $15 a share.Firm B has 1,000 shares outstanding at a price of $10 a share.What is the value of the merged firm?

Accepted Answer

A) $25,000 
B) $45,000 
C) $55,000 
D) $60,000 
E) $50,000 
A) $25,000 
B) $45,000 
C) $55,000 
D) $60,000 
E) $50,000 C

Question 4

Assume one firm acquires another in an all-cash transaction.Explain why the acquiring firm generally carries the acquired fixed assets on their books at the pre-acquisition book values rather than writing those assets up to their current market values,which they are allowed to do.

Accepted Answer

Because this is a cash acquisition it is

Question 5

Sometimes the management of a target firm fights a takeover attempt even when that attempt appears to be in the best interest of the shareholders.Why would management take this stance?

Accepted Answer

Often,the management of the target firm

Question 6

The Williams Act requires Schedule 13D be filed with the SEC within ________ days of obtaining a ________ percent holding in a target firm's stock.

Accepted Answer

A) 5; 10 
B) 10; 5 
C) 15; 5 
D) 5; 15 
E) 15; 10 
A) 5; 10 
B) 10; 5 
C) 15; 5 
D) 5; 15 
E) 15; 10

Question 7

ABC and XYZ are all-equity firms.ABC has 1,750 shares outstanding at a market price of $20 a share while XYZ has 2,500 shares outstanding at a price of $28 a share.ABC is acquiring XYZ for $75,000 in cash.The incremental value of the acquisition is $8,000.What is the net present value of acquiring XYZ to ABC?

Accepted Answer

A) $2,000 
B) $3,000 
C) $6,000 
D) $4,000 
E) $8,000 
A) $2,000 
B) $3,000 
C) $6,000 
D) $4,000 
E) $8,000

Question 8

If the All-Star Fuel Filling Company,a chain of gasoline stations,acquires the Mid-States Refining Company,a refiner of oil products,this would be an example of a:

Accepted Answer

A) conglomerate acquisition. 
B) white knight. 
C) vertical acquisition. 
D) going-private transaction. 
E) horizontal acquisition. 
A) conglomerate acquisition. 
B) white knight. 
C) vertical acquisition. 
D) going-private transaction. 
E) horizontal acquisition.

Question 9

Firm X is planning on merging with Firm Y.Firm X currently has 3,500 shares of stock outstanding at a market price of $25 a share.Firm Y has 400 shares outstanding at a price of $22 a share.The merger will create $500 of synergy.How many of its shares should Firm X offer in exchange for all Firm Y's shares if it wants its acquisition cost to be $9,000?

Accepted Answer

A) 408 
B) 359 
C) 409 
D) 360 
E) 375 
A) 408 
B) 359 
C) 409 
D) 360 
E) 375

Question 10

Assume a well-established firm is operating at high levels of efficiency and profitability.A group of recent college grads recently opened a new firm in the same industry.The well-established firm might be interested in acquiring the new firm primarily to:

Accepted Answer

A) reduce economies of scale. 
B) use the established firm's tax losses. 
C) transfer technology knowledge. 
D) obtain the new firm's surplus funds. 
E) control the production of purchased component parts. 
A) reduce economies of scale. 
B) use the established firm's tax losses. 
C) transfer technology knowledge. 
D) obtain the new firm's surplus funds. 
E) control the production of purchased component parts.

Question 11

A merger in which an entirely new firm is created and both the acquired and acquiring firms cease to exist is called a:

Accepted Answer

A) divestiture. 
B) consolidation. 
C) tender offer. 
D) spinoff. 
E) conglomeration. 
A) divestiture. 
B) consolidation. 
C) tender offer. 
D) spinoff. 
E) conglomeration.

Question 12

A tender offer generally offers a price that is ________ the current market price for a ________ number of shares.

Accepted Answer

A) equal to; minimum 
B) above; minimum 
C) above; maximum 
D) below; maximum 
E) equal to; maximum 
A) equal to; minimum 
B) above; minimum 
C) above; maximum 
D) below; maximum 
E) equal to; maximum

Question 13

A proposed acquisition may create synergy by doing all the following except:

Accepted Answer

A) increasing the market power of the combined firm. 
B) improving the distribution network of the acquiring firm. 
C) reducing the acquiring firm's distribution costs. 
D) reducing the utilization of the acquiring firm's assets. 
E) providing the combined firm with a strategic advantage. 
A) increasing the market power of the combined firm. 
B) improving the distribution network of the acquiring firm. 
C) reducing the acquiring firm's distribution costs. 
D) reducing the utilization of the acquiring firm's assets. 
E) providing the combined firm with a strategic advantage.

Question 14

Cassandra's has 6,100 shares outstanding at a market price per share of $24.Adrian's has 3,500 shares outstanding at a market price of $56 a share.Neither firm has any debt.Adrian's is acquiring Cassandra's for $155,000 in cash.The synergy of the acquisition is $22,500.What is the value of Cassandra's to Adrian's?

Accepted Answer

A) $155,000 
B) $132,500 
C) $168,900 
D) $158,200 
E) $146,400 
A) $155,000 
B) $132,500 
C) $168,900 
D) $158,200 
E) $146,400

Question 15

A going-private transaction in which a large percentage of the money used to buy the outstanding stock is borrowed is called a:

Accepted Answer

A) tender offer. 
B) proxy contest. 
C) merger. 
D) leveraged buyout. 
E) consolidation. 
A) tender offer. 
B) proxy contest. 
C) merger. 
D) leveraged buyout. 
E) consolidation.

Question 16

All the following will tend to discourage a takeover except:

Accepted Answer

A) a supermajority provision. 
B) the hoarding of cash. 
C) an exclusionary self-tender offer. 
D) a leveraged recapitalization. 
E) the divestiture of key assets. 
A) a supermajority provision. 
B) the hoarding of cash. 
C) an exclusionary self-tender offer. 
D) a leveraged recapitalization. 
E) the divestiture of key assets.

Question 17

An attempt to gain control of a firm by soliciting a sufficient number of stockholder votes to replace the current board of directors is called a:

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 18

The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n):

Accepted Answer

A) split-up. 
B) carve-out. 
C) counter-tender offer. 
D) white knight gift. 
E) spin-off. 
A) split-up. 
B) carve-out. 
C) counter-tender offer. 
D) white knight gift. 
E) spin-off.

Question 19

New England Fisheries (NEF)has 18,000 shares outstanding at a market price per share of $14.Maryland Fish Markets (MFM)has 7,000 shares outstanding at a market price of $21 a share.Neither firm has any debt.MFM is acquiring NEF for $275,000 in cash.What is the merger premium per share?

Accepted Answer

A) $1.43 
B) $1.28 
C) $.81 
D) $1.04 
E) $2.07 
A) $1.43 
B) $1.28 
C) $.81 
D) $1.04 
E) $2.07

Question 20

Which one of the following statements is correct?

Accepted Answer

A) If an acquisition is made with cash,then the cost of that acquisition is dependent upon the acquisition gains. 
B) Acquisitions made by exchanging shares of stock are normally taxable transactions. 
C) Shareholders of the acquired firm must immediately realize capital gains/losses in a cash acquisition. 
D) Shareholders of the acquired firm are generally indifferent between a cash or a stock transaction. 
E) Acquisitions based on legitimate business purposes are not taxable transactions regardless of the means of financing used. 
A) If an acquisition is made with cash,then the cost of that acquisition is dependent upon the acquisition gains. 
B) Acquisitions made by exchanging shares of stock are normally taxable transactions. 
C) Shareholders of the acquired firm must immediately realize capital gains/losses in a cash acquisition. 
D) Shareholders of the acquired firm are generally indifferent between a cash or a stock transaction. 
E) Acquisitions based on legitimate business purposes are not taxable transactions regardless of the means of financing used.

Exam 29: Mergers,acquisitions,and Divestitures

A key reason for acquisitions is synergy.Synergy includes all the following except:

If Microsoft were to acquire an airline,the acquisition would be classified as a ________ acquisition.

Assume one firm acquires another in an all-cash transaction.Explain why the acquiring firm generally carries the acquired fixed assets on their books at the pre-acquisition book values rather than writing those assets up to their current market values,which they are allowed to do.

Sometimes the management of a target firm fights a takeover attempt even when that attempt appears to be in the best interest of the shareholders.Why would management take this stance?

The Williams Act requires Schedule 13D be filed with the SEC within ________ days of obtaining a ________ percent holding in a target firm's stock.

If the All-Star Fuel Filling Company,a chain of gasoline stations,acquires the Mid-States Refining Company,a refiner of oil products,this would be an example of a:

Assume a well-established firm is operating at high levels of efficiency and profitability.A group of recent college grads recently opened a new firm in the same industry.The well-established firm might be interested in acquiring the new firm primarily to:

A merger in which an entirely new firm is created and both the acquired and acquiring firms cease to exist is called a:

A tender offer generally offers a price that is ________ the current market price for a ________ number of shares.

A proposed acquisition may create synergy by doing all the following except:

A going-private transaction in which a large percentage of the money used to buy the outstanding stock is borrowed is called a:

All the following will tend to discourage a takeover except:

An attempt to gain control of a firm by soliciting a sufficient number of stockholder votes to replace the current board of directors is called a:

The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n):

New England Fisheries (NEF)has 18,000 shares outstanding at a market price per share of $14.Maryland Fish Markets (MFM)has 7,000 shares outstanding at a market price of $21 a share.Neither firm has any debt.MFM is acquiring NEF for $275,000 in cash.What is the merger premium per share?

Which one of the following statements is correct?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Financial Distress

International Corporate Finance

Filters

The Williams Act requires Schedule 13D be filed with the SEC within days of obtaining a percent holding in a target firm's stock.

A tender offer generally offers a price that is the current market price for a number of shares.