Question 1

A ________ is when a firm acquires a supplier or a customer.

Accepted Answer

A)  congeneric merger 
B)  conglomerate merger 
C)  horizontal merger 
D)  vertical merger 
A)  congeneric merger 
B)  conglomerate merger 
C)  horizontal merger 
D)  vertical merger

Question 2

Disadvantages of holding companies include ________.

Accepted Answer

A)  high dollar investment 
B)  acquisition of significantly lesser amount of assets 
C)  legal responsibility for subsidiaries 
D)  double taxation 
A)  high dollar investment 
B)  acquisition of significantly lesser amount of assets 
C)  legal responsibility for subsidiaries 
D)  double taxation

Question 3

Tangshan Mining is attempting to acquire Zhengsen Mining. Selected financial data is presented for both companies in the table below:   Tangshan Mining has sufficient authorized but unissued shares to carry out the proposed merger. If the ratio of exchange is 1.8, what will be the EPS of the merged firm?

Accepted Answer

A)  $1.00 
B)  $1.03 
C)  $1.08 
D)  $2.00 
A)  $1.00 
B)  $1.03 
C)  $1.08 
D)  $2.00

Question 4

A major impetus fueling financial mergers during the 1980s was ________.

Accepted Answer

A)  high interest rates 
B)  high tax rates 
C)  high cash balances that could be utilized for takeovers 
D)  ready availability of junk bond financing 
A)  high interest rates 
B)  high tax rates 
C)  high cash balances that could be utilized for takeovers 
D)  ready availability of junk bond financing

Question 5

One of the main goals of divestiture is ________.

Accepted Answer

A)  expanding operations 
B)  economies of scale 
C)  employee stock option 
D)  raising funds 
A)  expanding operations 
B)  economies of scale 
C)  employee stock option 
D)  raising funds

Question 6

Markepta, Inc. is considering the acquisition of Management Theories, Inc. at a cash price of $1.5 million. Crimson Services, Inc. has short-term liabilities of $500,000. As a result of acquiring Crimson Services, Inc., Markepta, Inc. would acquire the copyrights of a national best-seller which would provide an estimated cash flow of $300,000 for the next five years. The firm has a cost of capital of 20 percent. The approximate net present value of this acquisition is ________.

Accepted Answer

A)  $500,000 
B)  $480,800 
C)  -$102,700.55 
D)  -$1,102,816.36 
A)  $500,000 
B)  $480,800 
C)  -$102,700.55 
D)  -$1,102,816.36

Question 7

A leveraged buyout needs to be carried out through ________.

Accepted Answer

A)  a hostile takeover 
B)  a friendly merger 
C)  a vertical merger or a hostile takeover 
D)  a conglomerate merger 
A)  a hostile takeover 
B)  a friendly merger 
C)  a vertical merger or a hostile takeover 
D)  a conglomerate merger

Question 8

A two-tier offer is a tender offer in which the terms offered are more attractive to those who tender shares early.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is a reason for undertaking mergers?

Accepted Answer

A)  increasing dividends 
B)  profit maximization 
C)  easy process 
D)  wealth maximization 
A)  increasing dividends 
B)  profit maximization 
C)  easy process 
D)  wealth maximization

Question 10

Which of the following is true of a horizontal merger?

Accepted Answer

A)  The key benefit of this merger stems from the merged firm's increased control over the acquisition of raw materials or the distribution of finished goods. 
B)  The key benefit of this form of merger is its ability to reduce risk by merging firms that have different patterns of sales and earnings. 
C)  This form of merger results when two firms in the same line of business are merged. 
D)  This form of merger occurs when a firm acquires a supplier or a customer. 
A)  The key benefit of this merger stems from the merged firm's increased control over the acquisition of raw materials or the distribution of finished goods. 
B)  The key benefit of this form of merger is its ability to reduce risk by merging firms that have different patterns of sales and earnings. 
C)  This form of merger results when two firms in the same line of business are merged. 
D)  This form of merger occurs when a firm acquires a supplier or a customer.

Question 11

The motive for divestiture is often to get rid of a poorly performing operation in order to generate cash for expansion of other product lines.

Accepted Answer

A) True 
 B)False

Question 12

A strategic merger is a merger transaction undertaken with the goal of restructuring the acquired company in order to improve its cash flow and unlock its hidden value.

Accepted Answer

A) True 
 B)False

Question 13

A holding company is a corporation which is controlled by one or more other corporations.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is true of a leveraged buyout?

Accepted Answer

A)  It is a type of a strategic merger. 
B)  It is used to increase market share, which is used to maximize shareholder wealth. 
C)  It aims at developing monopoly control over the markets. 
D)  It involves the use of a large amount of debt to purchase a firm. 
A)  It is a type of a strategic merger. 
B)  It is used to increase market share, which is used to maximize shareholder wealth. 
C)  It aims at developing monopoly control over the markets. 
D)  It involves the use of a large amount of debt to purchase a firm.

Question 15

The ratio of exchange in market price indicates the market price per share of an acquiring firm paid for each dollar of market price per share of the target firm.

Accepted Answer

A) True 
 B)False

Question 16

The acquiring firm pays a price that is a premium above the market price of the acquired firm. This means that the ratio of exchange in market price is ________.

Accepted Answer

A)  less than 1 
B)  greater than 1 
C)  0, because the ratio of exchange results in no increase or decrease of shares 
D)  equal to 1 
A)  less than 1 
B)  greater than 1 
C)  0, because the ratio of exchange results in no increase or decrease of shares 
D)  equal to 1

Question 17

The priority of claims established by Chapter 7 of the Bankruptcy Reform Act of 1978 gives priority to claims of ________.

Accepted Answer

A)  unsecured creditors over claims of secured creditors 
B)  preferred stockholders over claims of unsecured creditors 
C)  wages payable over claims of unsecured creditors 
D)  farmers in grain storage over expenses of administering the bankruptcy 
A)  unsecured creditors over claims of secured creditors 
B)  preferred stockholders over claims of unsecured creditors 
C)  wages payable over claims of unsecured creditors 
D)  farmers in grain storage over expenses of administering the bankruptcy

Question 18

Chapter 7 of the Bankruptcy Reform Act of 1978 outlines the procedures for reorganizing a failed (or failing) firm, whether its petition is filed voluntarily or involuntarily.

Accepted Answer

A) True 
 B)False

Question 19

One of the key motives for mergers is ________.

Accepted Answer

A)  reducing the marginal tax rate 
B)  taking advantage of the other firm's tax loss carryforward 
C)  to sell the assets of the target company to increase the cash balance 
D)  increasing additional recaptured depreciation 
A)  reducing the marginal tax rate 
B)  taking advantage of the other firm's tax loss carryforward 
C)  to sell the assets of the target company to increase the cash balance 
D)  increasing additional recaptured depreciation

Question 20

A spin-off means ________.

Accepted Answer

A)  a subsidiary being sold to existing management resulting in a new company 
B)  a subsidiary merging completely with its holding company 
C)  a subsidiary becoming an independent company 
D)  a subsidiary being taken over by the federal government due to its incapabilities to survive on its own 
A)  a subsidiary being sold to existing management resulting in a new company 
B)  a subsidiary merging completely with its holding company 
C)  a subsidiary becoming an independent company 
D)  a subsidiary being taken over by the federal government due to its incapabilities to survive on its own

A ________ is when a firm acquires a supplier or a customer.

Disadvantages of holding companies include ________.

A major impetus fueling financial mergers during the 1980s was ________.

One of the main goals of divestiture is ________.

A leveraged buyout needs to be carried out through ________.

A two-tier offer is a tender offer in which the terms offered are more attractive to those who tender shares early.

Which of the following is a reason for undertaking mergers?

Which of the following is true of a horizontal merger?

The motive for divestiture is often to get rid of a poorly performing operation in order to generate cash for expansion of other product lines.

A strategic merger is a merger transaction undertaken with the goal of restructuring the acquired company in order to improve its cash flow and unlock its hidden value.

A holding company is a corporation which is controlled by one or more other corporations.

Which of the following is true of a leveraged buyout?

The ratio of exchange in market price indicates the market price per share of an acquiring firm paid for each dollar of market price per share of the target firm.

The acquiring firm pays a price that is a premium above the market price of the acquired firm. This means that the ratio of exchange in market price is ________.

The priority of claims established by Chapter 7 of the Bankruptcy Reform Act of 1978 gives priority to claims of ________.

Chapter 7 of the Bankruptcy Reform Act of 1978 outlines the procedures for reorganizing a failed (or failing) firm, whether its petition is filed voluntarily or involuntarily.

One of the key motives for mergers is ________.

A spin-off means ________.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

International Managerial Finance

Filters

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

A ________ is when a firm acquires a supplier or a customer.

Disadvantages of holding companies include ________.

A major impetus fueling financial mergers during the 1980s was ________.

One of the main goals of divestiture is ________.

A leveraged buyout needs to be carried out through ________.

A two-tier offer is a tender offer in which the terms offered are more attractive to those who tender shares early.

Which of the following is a reason for undertaking mergers?

Which of the following is true of a horizontal merger?

The motive for divestiture is often to get rid of a poorly performing operation in order to generate cash for expansion of other product lines.

A strategic merger is a merger transaction undertaken with the goal of restructuring the acquired company in order to improve its cash flow and unlock its hidden value.

A holding company is a corporation which is controlled by one or more other corporations.

Which of the following is true of a leveraged buyout?

The ratio of exchange in market price indicates the market price per share of an acquiring firm paid for each dollar of market price per share of the target firm.

The acquiring firm pays a price that is a premium above the market price of the acquired firm. This means that the ratio of exchange in market price is ________.

The priority of claims established by Chapter 7 of the Bankruptcy Reform Act of 1978 gives priority to claims of ________.

Chapter 7 of the Bankruptcy Reform Act of 1978 outlines the procedures for reorganizing a failed (or failing) firm, whether its petition is filed voluntarily or involuntarily.

One of the key motives for mergers is ________.

A spin-off means ________.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

International Managerial Finance

Filters