Question 1

A friendly suitor that a target firm turns to as an alternative to a hostile bidder is called a:

Accepted Answer

A) golden suitor. 
B) poison put. 
C) white knight. 
D) shark repellent. 
E) crown jewel. 
A) golden suitor. 
B) poison put. 
C) white knight. 
D) shark repellent. 
E) crown jewel.

Question 2

The acquisition of a firm whose business is not related to that of the bidder is called a ________ acquisition.

Accepted Answer

A) conglomerate 
B) forward 
C) backward 
D) horizontal 
E) vertical 
A) conglomerate 
B) forward 
C) backward 
D) horizontal 
E) vertical

Question 3

All the following represent potential gains from an acquisition except:

Accepted Answer

A) the replacement of ineffective managers. 
B) lower costs per unit produced. 
C) an increase in production size such that diseconomies of scale are realized. 
D) increased asset utilization. 
E) spreading of overhead costs. 
A) the replacement of ineffective managers. 
B) lower costs per unit produced. 
C) an increase in production size such that diseconomies of scale are realized. 
D) increased asset utilization. 
E) spreading of overhead costs.

Question 4

A dissident group solicits votes in an attempt to replace existing management.This is called a:

Accepted Answer

A) tender offer. 
B) shareholder derivative action. 
C) proxy contest. 
D) management freeze-out. 
E) shareholder's revenge. 
A) tender offer. 
B) shareholder derivative action. 
C) proxy contest. 
D) management freeze-out. 
E) shareholder's revenge.

Question 5

Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Accepted Answer

The three forms are merger,acquisition o

Question 6

The acquisition of a firm in the same industry as the bidder is called a ________ acquisition.

Accepted Answer

A) conglomerate 
B) forward 
C) backward 
D) horizontal 
E) vertical 
A) conglomerate 
B) forward 
C) backward 
D) horizontal 
E) vertical

Question 7

Firm A is planning on merging with Firm B.Firm A will pay Firm B's stockholders the current value of their stock plus $120,which equals one-half of the synergy,in shares of Firm A.Firm A currently has 4,000 shares of stock outstanding at a market price of $21 a share.Firm B has 1,200 shares outstanding at a price of $10 a share.What is the value of the merged firm?

Accepted Answer

A) $88,120 
B) $96,240 
C) $96,000 
D) $84,120 
E) $92,360 
A) $88,120 
B) $96,240 
C) $96,000 
D) $84,120 
E) $92,360

Question 8

Which one of these is least associated with takeovers?

Accepted Answer

A) Leveraged buyouts 
B) Management buyouts 
C) Proxy contests 
D) Acquisition of assets 
E) Spin-offs 
A) Leveraged buyouts 
B) Management buyouts 
C) Proxy contests 
D) Acquisition of assets 
E) Spin-offs

Question 9

In a merger or acquisition,a firm should be acquired if it:

Accepted Answer

A) generates a positive net present value to the shareholders of the acquiring firm. 
B) is a firm in the same line of business in which the acquirer has expertise. 
C) is a firm in a totally different line of business which will diversify the firm. 
D) pays a large dividend which will provide a cash pass through to the acquirer. 
E) increases the firm's market share. 
A) generates a positive net present value to the shareholders of the acquiring firm. 
B) is a firm in the same line of business in which the acquirer has expertise. 
C) is a firm in a totally different line of business which will diversify the firm. 
D) pays a large dividend which will provide a cash pass through to the acquirer. 
E) increases the firm's market share.

Question 10

Which one of the following statements is correct?

Accepted Answer

A) A carve-out generates cash for the parent firm. 
B) A split-up frequently follows a spin-off. 
C) A 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 carve-out generates cash for the parent firm. 
B) A split-up frequently follows a spin-off. 
C) A 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 11

Ferns and Plants are all-equity firms.Ferns has 2,500 shares outstanding at a market price of $28 a share.Plants has 2,500 shares outstanding at a price of $41 a share.Plants is acquiring Ferns for $72,000 in cash.The synergy of the acquisition is $3,500.What is the value of Ferns to Plants?

Accepted Answer

A) $66,500 
B) $70,000 
C) $36,000 
D) $73,500 
E) $79,500 
A) $66,500 
B) $70,000 
C) $36,000 
D) $73,500 
E) $79,500

Question 12

In a merger the:

Accepted Answer

A) legal status of both the acquiring firm and the target firm is terminated. 
B) acquiring firm retains its name and legal status. 
C) acquiring firm acquires the assets but not the liabilities of the target firm. 
D) stockholders of the target firm have little,if any,say as to whether or not the merger occurs. 
E) target firm always continues to exist as a subsidiary of the acquiring firm. 
A) legal status of both the acquiring firm and the target firm is terminated. 
B) acquiring firm retains its name and legal status. 
C) acquiring firm acquires the assets but not the liabilities of the target firm. 
D) stockholders of the target firm have little,if any,say as to whether or not the merger occurs. 
E) target firm always continues to exist as a subsidiary of the acquiring firm.

Question 13

One company wishes to acquire another.Which one of the following does not require a formal vote by the shareholders of the acquired firm?

Accepted Answer

A) A merger 
B) An acquisition of stock 
C) A horizontal acquisition of assets 
D) A consolidation 
E) A vertical acquisition of assets 
A) A merger 
B) An acquisition of stock 
C) A horizontal acquisition of assets 
D) A consolidation 
E) A vertical acquisition of assets

Question 14

Principal is acquiring Secondary Companies for $38,000 in cash.Principal has 4,500 shares of stock outstanding at a market price of $31 a share.Secondary has 1,600 shares of stock outstanding at a market price of $22 a share.Neither firm has any debt.The net present value of the acquisition is $2,400.What is the price per share of Principal after the acquisition?

Accepted Answer

A) $31.00 
B) $30.78 
C) $31.53 
D) $32.10 
E) $31.94 
A) $31.00 
B) $30.78 
C) $31.53 
D) $32.10 
E) $31.94

Question 15

The complete absorption of one company by another,wherein the acquiring firm retains its identity and the acquired firm ceases to exist as a separate entity,is called a:

Accepted Answer

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

Question 16

Turner's has $3.8 million in net working capital.The firm has fixed assets with a book value of $48.6 million and a market value of $54.2 million.Martin & Sons is buying Turner' for $61.5 million in cash.The acquisition will be recorded using the purchase accounting method.What is the amount of goodwill that Martin & Sons will record on its balance sheet as a result of this acquisition?

Accepted Answer

A) $0 
B) $3.5 million 
C) $6.6 million 
D) $7.2 million 
E) $9.1 million 
A) $0 
B) $3.5 million 
C) $6.6 million 
D) $7.2 million 
E) $9.1 million

Question 17

Firm A is acquiring Firm T for $22,500 in cash.Firm A has 2,300 shares of stock outstanding at a market value of $26 a share.Firm T has 1,200 shares of stock outstanding at a market price of $17 a share.Neither firm has any debt.The net present value of the acquisition is $1,900.What is the price per share of Firm A after the acquisition?

Accepted Answer

A) $26.00 
B) $28.25 
C) $26.83 
D) $25.17 
E) $26.50 
A) $26.00 
B) $28.25 
C) $26.83 
D) $25.17 
E) $26.50

Question 18

Assume two firms are at their maximum level of debt.How can a merger between these firms create synergy based on debt capacity?

Accepted Answer

A) By increasing firm size 
B) By lowering risk 
C) By lowering taxes 
D) By lowering the tax shield 
E) They can't. 
A) By increasing firm size 
B) By lowering risk 
C) By lowering taxes 
D) By lowering the tax shield 
E) They can't.

Question 19

Alexandra's is being acquired by David's for $75,000 cash.The acquisition is being financed internally from retained earnings.Alexandra's currently has 3,000 shares of stock outstanding at a price of $24 a share.David's has 10,000 shares outstanding with a market value of $48 a share.The acquisition will create $4,000 of synergy.What is the value of David's after the acquisition?

Accepted Answer

A) $556,000 
B) $409,000 
C) $438,000 
D) $521,000 
E) $481,000 
A) $556,000 
B) $409,000 
C) $438,000 
D) $521,000 
E) $481,000

Question 20

Firm A is planning on merging with Firm B.Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share.Firm B has 750 shares outstanding at a price of $15 a share.The merger will create $200 of synergy.How many of its shares should Firm A offer in exchange for all of Firm B's shares if it wants its acquisition cost to be $12,000?

Accepted Answer

A) 598 
B) 607 
C) 600 
D) 584 
E) 593 
A) 598 
B) 607 
C) 600 
D) 584 
E) 593

Exam 29: Mergers,acquisitions,and Divestitures

A friendly suitor that a target firm turns to as an alternative to a hostile bidder is called a:

The acquisition of a firm whose business is not related to that of the bidder is called a ________ acquisition.

All the following represent potential gains from an acquisition except:

A dissident group solicits votes in an attempt to replace existing management.This is called a:

Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

The acquisition of a firm in the same industry as the bidder is called a ________ acquisition.

Which one of these is least associated with takeovers?

In a merger or acquisition,a firm should be acquired if it:

Which one of the following statements is correct?

Ferns and Plants are all-equity firms.Ferns has 2,500 shares outstanding at a market price of $28 a share.Plants has 2,500 shares outstanding at a price of $41 a share.Plants is acquiring Ferns for $72,000 in cash.The synergy of the acquisition is $3,500.What is the value of Ferns to Plants?

In a merger the:

One company wishes to acquire another.Which one of the following does not require a formal vote by the shareholders of the acquired firm?

The complete absorption of one company by another,wherein the acquiring firm retains its identity and the acquired firm ceases to exist as a separate entity,is called a:

Assume two firms are at their maximum level of debt.How can a merger between these firms create synergy based on debt capacity?

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

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