Exam 18: Mergers, Lbos, Divestitures, and Business Failure

A consolidated corporation has voting control of one or more other corporations.

Unlike business bankruptcy and business failure, divestiture is often undertaken for positive motives in a manner that is consistent with the firm's strategic goals.

A congeneric merger is a merger combining firms in unrelated businesses.

A key consideration in the holding company decision is ________.

A ________ may result in the expansion of a firm's operations in an existing product line and elimination of a competitor.

The combination of two or more companies to form a completely new corporation is a ________.

Maxi, Inc. is evaluating the acquisition of Mini, Inc., which had a loss carryforward of $2.75 million which resulted from earlier operations. Maxi can purchase Mini for $3.5 million and liquidate the assets for $1.25 million. Maxi expects earnings before taxes in the three years following the acquisition to be as follows: (These earnings are assumed to fall within the limit legally allowed for application of a tax loss carryforward resulting from the proposed acquisition.) Maxi has a 40 percent tax rate and a cost of capital of 10 percent. The total present value of tax advantage of the acquisition in the following three years is ________.

A firm in a merger transaction that attempts to merge or takeover another company is called the ________.

A ________ results from the combination of firms in the same line of business.

Julie's Tanning Systems has an estimated liquidation value (after all prior claims have been satisfied) of $3,000,000, $1,500,000 from fixed assets, and $1,500,000 from current assets. The firm's value as a going concern is $4,000,000. The firm's current capital structure is as follows: *Secured by fixed assets. Prepare a table indicating the amount, if any, to be distributed to each claimant, in the event of liquidation.

An attractive candidate for acquisition through leveraged buyout must have a good position in its industry with a solid profit history and reasonable expectation for growth.