Question 1

Generous compensation packages paid to a firm's top managers in the event of a takeover are referred to as:

Accepted Answer

A) golden parachutes. 
B) poison puts. 
C) white knights. 
D) shark repellents. 
E) bear hugs. 
A) golden parachutes. 
B) poison puts. 
C) white knights. 
D) shark repellents. 
E) bear hugs.

Question 2

Firm X is being acquired by Firm Y for $35,000 cash which is being provided by retained earnings.The synergy of the acquisition is $5,000.Firm X has 2,000 shares of stock outstanding at a price of $16 a share.Firm Y has 10,200 shares of stock outstanding at a price of $46 a share.What is the value of Firm Y after the acquisition?

Accepted Answer

A) $534,750 
B) $471,200 
C) $435,000 
D) $468,900 
E) $535,500 
A) $534,750 
B) $471,200 
C) $435,000 
D) $468,900 
E) $535,500

Question 3

The market values of Firm V and Firm A are $1,800 and $600,respectively.Assume Firm V acquires Firm A at a cost of $650 and creates $150 in synergy.What would be the NPV of this acquisition to Firm V?

Accepted Answer

A) $50 
B) $100 
C) $125 
D) $150 
E) $0 
A) $50 
B) $100 
C) $125 
D) $150 
E) $0

Question 4

The shareholders of a target firm benefit the most when:

Accepted Answer

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

Question 5

Which one of the following combinations of firms would benefit the most through the use of complementary resources?

Accepted Answer

A) A ski resort and a travel trailer sales outlet 
B) A golf resort and a ski resort 
C) A hotel and a home improvement center 
D) A swimming pool distributor and a kitchen designer 
E) A fast food restaurant and a dry cleaner 
A) A ski resort and a travel trailer sales outlet 
B) A golf resort and a ski resort 
C) A hotel and a home improvement center 
D) A swimming pool distributor and a kitchen designer 
E) A fast food restaurant and a dry cleaner

Question 6

A business deal in which all publicly owned stock in a firm is replaced with complete equity ownership by a private group is called a:

Accepted Answer

A) tender offer. 
B) proxy contest. 
C) going-private transaction. 
D) acquisition. 
E) consolidation. 
A) tender offer. 
B) proxy contest. 
C) going-private transaction. 
D) acquisition. 
E) consolidation.

Question 7

The acquisition of a firm involved with a different production process stage than 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 8

A classified board is:

Accepted Answer

A) a communication network that identifies firms that are willing to be acquired 
B) the inclusion a super majority provision to prevent a small number of directors from exerting total control over the board's decisions. 
C) a board where only a portion of the directors are elected in any one year. 
D) a communication network that distributes resumes for potential board candidates. 
E) a listing of criteria that a firm is seeking for a targeted purchase. 
A) a communication network that identifies firms that are willing to be acquired 
B) the inclusion a super majority provision to prevent a small number of directors from exerting total control over the board's decisions. 
C) a board where only a portion of the directors are elected in any one year. 
D) a communication network that distributes resumes for potential board candidates. 
E) a listing of criteria that a firm is seeking for a targeted purchase.

Question 9

The empirical evidence strongly indicates that the stockholders of the target firm realize wealth gains while the stockholders in the acquiring firm gain little,if anything,from an acquisition.Although there exists no definitive answer as to why this is the case,several possible explanations have been proposed.List and explain three possible explanations for the minimal returns to the acquiring firm's stockholders.

Accepted Answer

Lack of achieving the expected synergy,m

Question 10

Explain the purpose of a standstill agreement and the basics of how it works.

Accepted Answer

A standstill agreement is designed to pr

Question 11

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) include synergies. 
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) include synergies. 
D) ignore any one-time acquisition fees or transaction costs. 
E) ignore any potential changes in management.

Question 12

Which one of the following statements concerning mergers and acquisitions is correct?

Accepted Answer

A) Generally,two-thirds of the shareholders in each firm must approve a merger. 
B) Acquisitions always result in at least one firm being dissolved. 
C) The net present value of an acquisition should have no bearing on whether or not the acquisition occurs. 
D) Acquisitions of assets are generally quite simple and inexpensive from a legal and accounting perspective. 
E) At least one-half of the shareholders must vote to approve an acquisition of stock. 
A) Generally,two-thirds of the shareholders in each firm must approve a merger. 
B) Acquisitions always result in at least one firm being dissolved. 
C) The net present value of an acquisition should have no bearing on whether or not the acquisition occurs. 
D) Acquisitions of assets are generally quite simple and inexpensive from a legal and accounting perspective. 
E) At least one-half of the shareholders must vote to approve an acquisition of stock.

Question 13

For the acquiring firm,diversification:

Accepted Answer

A) will automatically produce gains. 
B) will reduce both risk and debt capacity. 
C) may or may not provide financial benefits. 
D) will provide risk reduction for all shareholders' portfolios. 
E) may result in a risk-free firm. 
A) will automatically produce gains. 
B) will reduce both risk and debt capacity. 
C) may or may not provide financial benefits. 
D) will provide risk reduction for all shareholders' portfolios. 
E) may result in a risk-free firm.

Exam 29: Mergers,acquisitions,and Divestitures

Generous compensation packages paid to a firm's top managers in the event of a takeover are referred to as:

The market values of Firm V and Firm A are $1,800 and $600,respectively.Assume Firm V acquires Firm A at a cost of $650 and creates $150 in synergy.What would be the NPV of this acquisition to Firm V?

The shareholders of a target firm benefit the most when:

Which one of the following combinations of firms would benefit the most through the use of complementary resources?

A business deal in which all publicly owned stock in a firm is replaced with complete equity ownership by a private group is called a:

The acquisition of a firm involved with a different production process stage than the bidder is called a ________ acquisition.

A classified board is:

Explain the purpose of a standstill agreement and the basics of how it works.

When evaluating an acquisition,you should:

Which one of the following statements concerning mergers and acquisitions is correct?

For the acquiring firm,diversification:

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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