Question 1

Which of the following statements regarding vertical integration is false?

Accepted Answer

A)  Vertically integrated companies may be large, but unlike other large corporations, since they remain focused in one industry they are easy to run. 
B)  A company might not be happy with how its products are being distributed, so it might decide to take control of its distribution channels. 
C)  A company might conclude that it can enhance its product if it has direct control of the inputs required to make the product. 
D)  The principal benefit of vertical integration is coordination. By putting two companies under central control, management can ensure that both companies work toward a common goal. 
A)  Vertically integrated companies may be large, but unlike other large corporations, since they remain focused in one industry they are easy to run. 
B)  A company might not be happy with how its products are being distributed, so it might decide to take control of its distribution channels. 
C)  A company might conclude that it can enhance its product if it has direct control of the inputs required to make the product. 
D)  The principal benefit of vertical integration is coordination. By putting two companies under central control, management can ensure that both companies work toward a common goal.

Question 2

In Canada,the law requires that when existing shareholders of a target firm are forced to sell their shares,they receive ________ for their shares.

Accepted Answer

A)  a fair market value 
B)  a discounted value 
C)  a risk-free stock value 
D)  the current market value 
A)  a fair market value 
B)  a discounted value 
C)  a risk-free stock value 
D)  the current market value

Question 3

Consider the following equation:   <     The term T in this equation refers to

Accepted Answer

A)  the premerger (standalone) value of the acquirer. 
B)  the value of the synergies created by the merger. 
C)  the premerger (standalone) value of the target. 
D)  new shares to pay for the target. 
A)  the premerger (standalone) value of the acquirer. 
B)  the value of the synergies created by the merger. 
C)  the premerger (standalone) value of the target. 
D)  new shares to pay for the target.

Question 4

The justification for the benefits of diversification from mergers include all of the following EXCEPT

Accepted Answer

A)  tax loss benefits. 
B)  lower cost of debt or increased debt capacity. 
C)  direct risk reduction. 
D)  liquidity enhancement. 
A)  tax loss benefits. 
B)  lower cost of debt or increased debt capacity. 
C)  direct risk reduction. 
D)  liquidity enhancement.

Question 5

Which of the following statements is false?

Accepted Answer

A)  All else being equal, larger firms, because they are more diversified, have an increased probability of bankruptcy. 
B)  To justify a takeover based on operating losses, management would have to argue that the tax savings are over and above what the firm would save using carryback and carryforward provisions. 
C)  It is possible to combine two companies with the result that the earnings per share of the merged company exceed the premerger earnings per share of either company, even when the merger itself creates no economic value. 
D)  When an acquirer buys a private target, it provides the target's owners with a way to reduce their risk exposure by cashing out their investment in the private target and reinvesting in a diversified portfolio. 
A)  All else being equal, larger firms, because they are more diversified, have an increased probability of bankruptcy. 
B)  To justify a takeover based on operating losses, management would have to argue that the tax savings are over and above what the firm would save using carryback and carryforward provisions. 
C)  It is possible to combine two companies with the result that the earnings per share of the merged company exceed the premerger earnings per share of either company, even when the merger itself creates no economic value. 
D)  When an acquirer buys a private target, it provides the target's owners with a way to reduce their risk exposure by cashing out their investment in the private target and reinvesting in a diversified portfolio.

Question 6

This period is known for known for "strategic" or "global" deals that were more likely to be friendly and to involve companies in related businesses; these mergers often were designed to create strong firms on a scale that would allow them to compete globally:

Accepted Answer

A)  1960s 
B)  1970s 
C)  1980s 
D)  1990s 
A)  1960s 
B)  1970s 
C)  1980s 
D)  1990s

Question 7

________ are/is by far the most common justification that bidders give for the premium they pay for a target.

Accepted Answer

A)  Small risks 
B)  Value Added 
C)  Diversification 
D)  Large synergies 
A)  Small risks 
B)  Value Added 
C)  Diversification 
D)  Large synergies

Question 8

You work for a levered buyout firm and are evaluating a potential buyout of Boogle Inc.Boogle's stock price is $18,and it has 3 million shares outstanding.You believe that if you buy the company and replace its dismal management team,its value will increase by 50%.You are planning on doing a levered buyout of Boogle and will offer $25 per share for control of the company.Assuming you get 50% control,what will your gain from the transaction be?

Accepted Answer

The initial value of Boogle is $18 × 3 m

Question 9

Which of the following statements is false?

Accepted Answer

A)  Any acquirer shares received in full or partial exchange for target shares triggers an immediate tax liability for target shareholders. 
B)  In a friendly takeover, the target board of directors supports the merger, negotiates with potential acquirers, and agrees on a price that is ultimately put to a shareholder vote. 
C)  How the acquirer pays for the target affects the taxes of both the target shareholders and the combined firm. 
D)  If the acquirer purchases the target assets directly (rather than the target stock), then it can step up the book value of the target's assets to the purchase price. 
A)  Any acquirer shares received in full or partial exchange for target shares triggers an immediate tax liability for target shareholders. 
B)  In a friendly takeover, the target board of directors supports the merger, negotiates with potential acquirers, and agrees on a price that is ultimately put to a shareholder vote. 
C)  How the acquirer pays for the target affects the taxes of both the target shareholders and the combined firm. 
D)  If the acquirer purchases the target assets directly (rather than the target stock), then it can step up the book value of the target's assets to the purchase price.

Question 10

The price paid for a target is equal to the target's ________ plus the ________ paid in the acquisition.

Accepted Answer

A)  after-bid market capitalization; premium 
B)  pre-bid market capitalization; administrative cost 
C)  pre-bid market capitalization; premium 
D)  pre-bid market capitalization; opportunity cost 
A)  after-bid market capitalization; premium 
B)  pre-bid market capitalization; administrative cost 
C)  pre-bid market capitalization; premium 
D)  pre-bid market capitalization; opportunity cost

Question 11

A situation where every director serves a three-year term and the terms are staggered so that only one-third of the directors are up for election each year is called a

Accepted Answer

A)  white knight. 
B)  classified board. 
C)  poison pill. 
D)  golden parachute. 
A)  white knight. 
B)  classified board. 
C)  poison pill. 
D)  golden parachute.

Question 12

Which of the following statements regarding recapitalization as a takeover defense is false?

Accepted Answer

A)  Another defense against a takeover is a recapitalization, in which a company changes its capital structure to make itself less attractive as a target. 
B)  Restructuring itself can produce efficiency gains, often removing the principal motivation for the takeover in the first place. 
C)  By increasing leverage on its own, the target firm can reap the benefit of the interest tax shields. 
D)  In many cases, a substantial portion of the synergy gains that an acquirer anticipates from a takeover are savings from a decrease in leverage as well as other cost reductions. 
A)  Another defense against a takeover is a recapitalization, in which a company changes its capital structure to make itself less attractive as a target. 
B)  Restructuring itself can produce efficiency gains, often removing the principal motivation for the takeover in the first place. 
C)  By increasing leverage on its own, the target firm can reap the benefit of the interest tax shields. 
D)  In many cases, a substantial portion of the synergy gains that an acquirer anticipates from a takeover are savings from a decrease in leverage as well as other cost reductions.

Exam 28: Mergers and Acquisitions

Which of the following statements regarding vertical integration is false?

In Canada,the law requires that when existing shareholders of a target firm are forced to sell their shares,they receive ________ for their shares.

Consider the following equation: < The term T in this equation refers to

The justification for the benefits of diversification from mergers include all of the following EXCEPT

Which of the following statements is false?

This period is known for known for "strategic" or "global" deals that were more likely to be friendly and to involve companies in related businesses; these mergers often were designed to create strong firms on a scale that would allow them to compete globally:

________ are/is by far the most common justification that bidders give for the premium they pay for a target.

Which of the following statements is false?

The price paid for a target is equal to the target's ________ plus the ________ paid in the acquisition.

A situation where every director serves a three-year term and the terms are staggered so that only one-third of the directors are up for election each year is called a

Which of the following statements regarding recapitalization as a takeover defense is false?

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress, managerial Incentives, and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modelling: a Case Study

The Mechanics of Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Corporate Governance

Risk Management

International Corporate Finance

Filters

The price paid for a target is equal to the target's plus the paid in the acquisition.