Question 1

The takeover market is characterized by peaks of heavy activity followed by quiet troughs of few transactions.

Accepted Answer

A) True 
 B)False

Question 2

Consider two firms,Big Company and Little Enterprises,both with earnings of $6 per share and 2 million shares outstanding.Big is a mature company with few growth opportunities and a stock price of $56 per share.Little is a new firm with much higher growth opportunities and a stock price of $72 per share.Assume Little acquires Big using its own stock and the takeover adds no value.What is the change in Little's earnings per share as a result of the acquisition?

Accepted Answer

A) $3.86 
B) -$2.63 
C) $0.75 
D) $0 
E) $6.00 
A) $3.86 
B) -$2.63 
C) $0.75 
D) $0 
E) $6.00

Question 3

Which of the following is an example of a merger undertaken in order to achieve economies of scale?

Accepted Answer

A) A car manufacturer acquires a car parts supplier. 
B) A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C) A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D) An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E) A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system. 
A) A car manufacturer acquires a car parts supplier. 
B) A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C) A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D) An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E) A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system.

Question 4

Sol Company has announced plans to acquire Luna Corporation.Sol is trading for $23 per share,and has a premerger value of $7 billion,while Luna is trading for $56 per share and has a premerger value of $5 billion.The projected synergies from the merger are $500 million.If the offer is for $2 billion in cash and the remainder in stock,what is the maximum exchange ratio that Sol could offer in the stock swap portion and still generate a positive NPV?

Accepted Answer

A) 3.04 
B) 2.68 
C) 2.84 
D) 0.48 
E) 0.45 
A) 3.04 
B) 2.68 
C) 2.84 
D) 0.48 
E) 0.45

Question 5

Consider two firms,Big Company and Little Enterprises,both with earnings of $6 per share and 2 million shares outstanding.Big is a mature company with few growth opportunities and a stock price of $56 per share.Little is a new firm with much higher growth opportunities and a stock price of $72 per share.Assume Little acquires Big using its own stock and the takeover adds no value.In a perfect capital market,how many shares must Little offer Big's shareholders in exchange for their shares?

Accepted Answer

A) 1.556 shares of Little for each share of Big Enterprises 
B) 0.643 shares of Little for each share of Big Enterprises 
C) 1 share of Little for each share of Big Enterprises 
D) 1.286 shares of Little for each share of Big Enterprises 
E) 0.778 shares of Little for each share of Big Enterprises 
A) 1.556 shares of Little for each share of Big Enterprises 
B) 0.643 shares of Little for each share of Big Enterprises 
C) 1 share of Little for each share of Big Enterprises 
D) 1.286 shares of Little for each share of Big Enterprises 
E) 0.778 shares of Little for each share of Big Enterprises

Question 6

Barlow Manufacturing has announced plans to acquire Hull Enterprises.Barlow is trading for $19.25 per share and has a premerger value of $3 billion,while Hull is trading for $41.35 per share and has a premerger value of $950 million dollars.If the projected synergies from the merger are $425 million,what is the maximum cash offer per share that Barlow could make and still generate a positive NPV?

Accepted Answer

A) $98.37 
B) $60.60 
C) $41.35 
D) $47.20 
E) $59.85 
A) $98.37 
B) $60.60 
C) $41.35 
D) $47.20 
E) $59.85

Question 7

Greentree Holdings has announced plans to acquire Mackinac Corporation.Greentree is trading for $15 per share and has a premerger value of $950 million,while Mackinac is trading for $25 per share and has a premerger value of $225 million dollars.If Greentree's maximum offer is 2.25 shares for each Mackinac share,what are the projected synergies from the merger?

Accepted Answer

A) $112.5 million 
B) $45 million 
C) $78.75 million 
D) $225 million 
E) $75 million 
A) $112.5 million 
B) $45 million 
C) $78.75 million 
D) $225 million 
E) $75 million

Question 8

Consider two firms,Bob Company and Cat Enterprises,both with earnings of $10 per share and 5 million shares outstanding.Cat is a mature company with few growth opportunities and a stock price of $25 per share.Bob is a new firm with much higher growth opportunities and a stock price of $40 per share.Assume Bob acquires Cat using its own stock and the takeover adds no value.What is the change in Bob's price-earnings ratio as a result of the acquisition?

Accepted Answer

A) 0 
B) -2 
C) 4 
D) -0.75 
E) 1.25 
A) 0 
B) -2 
C) 4 
D) -0.75 
E) 1.25

Question 9

The merger of two companies in the same industry that make products required at different stages of the production cycle is called:

Accepted Answer

A) economies of scope. 
B) vertical integration. 
C) economies of scale. 
D) horizontal integration. 
E) efficiency gains. 
A) economies of scope. 
B) vertical integration. 
C) economies of scale. 
D) horizontal integration. 
E) efficiency gains.

Question 10

Consider two firms,Blue and Berry.Both companies will either make $25 million or lose $5 million every year with equal probability.The companies' profits are perfectly negatively correlated,so that in any year,one company makes $25 million and the other loses $5 million.If the two firms merge but are run as two independent divisions,what is the change in expected after-tax profits of the combined company (BlueBerry)in any year versus the combined expected after-tax profits of the two separate companies in any year,assuming a corporate tax rate of 30% and no tax loss carryback or carryforward?

Accepted Answer

A) $1.5 million 
B) $7.75 million 
C) $0.75 million 
D) -$5.5 million 
E) $0 
A) $1.5 million 
B) $7.75 million 
C) $0.75 million 
D) -$5.5 million 
E) $0

Question 11

A merger in which the target's industry buys or sells to the acquirer's industry is called a(n):

Accepted Answer

A) horizontal merger. 
B) vertical merger. 
C) conglomerate merger. 
D) industrial merger. 
E) complementary merger. 
A) horizontal merger. 
B) vertical merger. 
C) conglomerate merger. 
D) industrial merger. 
E) complementary merger.

Question 12

Consider two firms,Big Company and Little Enterprises,both with earnings of $6 per share and 2 million shares outstanding.Big is a mature company with few growth opportunities and a stock price of $56 per share.Little is a new firm with much higher growth opportunities and a stock price of $72 per share.Assume Little acquires Big using its own stock and the takeover adds no value.What is the change in Little's price-earnings ratio as a result of the acquisition?

Accepted Answer

A) 0 
B) 9.36 
C) -4.70 
D) -1.33 
E) 1.25 
A) 0 
B) 9.36 
C) -4.70 
D) -1.33 
E) 1.25

Question 13

Explain the difference between a horizontal merger and a vertical merger.

Accepted Answer

A horizontal merger is a merge

Question 14

The fact that a large company can enjoy savings from producing goods in high volume that are NOT available to a small company is called:

Accepted Answer

A) economies of scale. 
B) horizontal integration. 
C) vertical integration. 
D) economies of scope. 
E) monopoly gains. 
A) economies of scale. 
B) horizontal integration. 
C) vertical integration. 
D) economies of scope. 
E) monopoly gains.

Question 15

Savings that come from combining the marketing and distribution of different types of related products are called:

Accepted Answer

A) horizontal integration. 
B) vertical integration. 
C) economies of scale. 
D) economies of scope. 
E) monopoly gains. 
A) horizontal integration. 
B) vertical integration. 
C) economies of scale. 
D) economies of scope. 
E) monopoly gains.

Question 16

Which of the following is an example of a merger undertaken in order to achieve gains from acquiring expertise?

Accepted Answer

A) A car manufacturer acquires a car parts supplier. 
B) A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C) A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D) An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E) A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system. 
A) A car manufacturer acquires a car parts supplier. 
B) A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C) A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D) An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E) A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system.

Question 17

Which of the following is an example of a merger undertaken in order to achieve efficiency gains?

Accepted Answer

A) A car manufacturer acquires a car parts supplier. 
B) A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C) A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D) An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E) A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system. 
A) A car manufacturer acquires a car parts supplier. 
B) A breakfast cereal producer acquires another breakfast cereal producer and the combined firm is able to negotiate a reduced cost for the grain used in its cereal. 
C) A telecommunications firm acquires another telecommunications firm and the combined firm serves a large percentage of the market. 
D) An accounting firm acquires another accounting firm and the combined firm is able to eliminate duplication among administrative positions. 
E) A video game development firm acquires another video game development firm that specializes in designing games for a new gaming system.

Question 18

Sol Company has announced plans to acquire Luna Corporation.Sol is trading for $210 per share,and has a premerger value of $22 billion,while Luna is trading for $145 per share and has a premerger value of $14 billion.The projected synergies from the merger are $1 billion.If the offer is for $8 billion in cash and the remainder in stock,what is the maximum exchange ratio that Sol could offer in the stock swap portion and still generate a positive NPV?

Accepted Answer

A) 0.81 
B) 0.74 
C) 0.72 
D) 1.69 
E) 1.55 
A) 0.81 
B) 0.74 
C) 0.72 
D) 1.69 
E) 1.55

Question 19

Purchasing a corporation requires a more accurate estimate of value than can be achieved using the method of comparables.

Accepted Answer

A) True 
 B)False

Question 20

Most acquirers pay an acquisition premium for a target.Upon announcement of the bid,the target's stock price increases,on average,so that the stock price is the same as the price bid by the acquirer.

Accepted Answer

A) True 
 B)False

The takeover market is characterized by peaks of heavy activity followed by quiet troughs of few transactions.

Which of the following is an example of a merger undertaken in order to achieve economies of scale?

The merger of two companies in the same industry that make products required at different stages of the production cycle is called:

A merger in which the target's industry buys or sells to the acquirer's industry is called a(n):

Explain the difference between a horizontal merger and a vertical merger.

The fact that a large company can enjoy savings from producing goods in high volume that are NOT available to a small company is called:

Savings that come from combining the marketing and distribution of different types of related products are called:

Which of the following is an example of a merger undertaken in order to achieve gains from acquiring expertise?

Which of the following is an example of a merger undertaken in order to achieve efficiency gains?

Purchasing a corporation requires a more accurate estimate of value than can be achieved using the method of comparables.

Most acquirers pay an acquisition premium for a target.Upon announcement of the bid,the target's stock price increases,on average,so that the stock price is the same as the price bid by the acquirer.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Corporate Governance

Filters

Exam 24: Mergers and Acquisitions

The takeover market is characterized by peaks of heavy activity followed by quiet troughs of few transactions.

Which of the following is an example of a merger undertaken in order to achieve economies of scale?

The merger of two companies in the same industry that make products required at different stages of the production cycle is called:

A merger in which the target's industry buys or sells to the acquirer's industry is called a(n):

Explain the difference between a horizontal merger and a vertical merger.

The fact that a large company can enjoy savings from producing goods in high volume that are NOT available to a small company is called:

Savings that come from combining the marketing and distribution of different types of related products are called:

Which of the following is an example of a merger undertaken in order to achieve gains from acquiring expertise?

Which of the following is an example of a merger undertaken in order to achieve efficiency gains?

Purchasing a corporation requires a more accurate estimate of value than can be achieved using the method of comparables.

Most acquirers pay an acquisition premium for a target.Upon announcement of the bid,the target's stock price increases,on average,so that the stock price is the same as the price bid by the acquirer.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Corporate Governance

Filters