Question 1

Brite Industries has agreed to merge with Nu-Day,Inc. for $20,000 worth of Nu-Day stock. Brite has 1,200 shares of stock outstanding at a price of $15 a share. Nu-Day has 2,000 shares outstanding with a market value of $19 a share. The incremental value of the acquisition is $3,500. What is the value of Nu-Day after the merger?

Accepted Answer

A)  $53,000 
B)  $54,250 
C)  $56,000 
D)  $57,750 
E)  $59,500

Question 2

Rudy's,Inc. and Blackstone,Inc. are all-equity firms. Rudy's has 1,500 shares outstanding at a market price of $22 a share. Blackstone has 2,500 shares outstanding at a price of $38 a share. Blackstone is acquiring Rudy's for $36,000 in cash. The incremental value of the acquisition is $3,500. What is the value of Rudy's Inc. to Blackstone?

Accepted Answer

A)  $30,000 
B)  $32,500 
C)  $33,000 
D)  $36,500 
E)  $39,500

Question 3

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)  apply the rate of return that is relevant to the incremental cash flows. 
D)  ignore any one-time acquisition fees or transaction costs. 
E)  ignore any potential changes in management.

Question 4

Firm X is being acquired by Firm Y for $35,000 worth of Firm Y stock. The incremental value of the acquisition is $2,500. Firm X has 2,000 shares of stock outstanding at a price of $16 a share. Firm Y has 1,200 shares of stock outstanding at a price of $40 a share. What is the actual cost of the acquisition using company stock?

Accepted Answer

A)  $34,750 
B)  $34,789 
C)  $35,000 
D)  $35,289 
E)  $35,500

Question 5

Which one of the following is most likely a good candidate for an acquisition that could benefit from the use of complementary resources?

Accepted Answer

A)  A sports arena that is home only to an indoor hockey team 
B)  A hotel in a busy downtown business district of a major city 
C)  A day care center located near a major route into the main business district of a large city 
D)  An amusement park located in a centralized Florida location 
E)  A fast food restaurant located near a major transportation hub

Question 6

In a merger the:

Accepted Answer

A)  legal status of both the acquiring firm and the target firm is terminated. 
B)  acquiring firm retains its name and legal status. 
C)  acquiring firm acquires the assets but not the liabilities of the target firm. 
D)  stockholders of the target firm have little, if any, say as to whether or not the merger occurs. 
E)  target firm always continues to exist as a subsidiary of the acquiring firm.

Question 7

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.

Question 8

Firm V was worth $500 and Firm A had a market value of $400. Firm V acquired Firm A for $450 because they thought the combination of the new Firm VA was worth $1,000. What is the NPV from the merger of Firm V and Firm A?

Accepted Answer

A)  $0 
B)  $50 
C)  $400 
D)  $450 
E)  None of these.

Question 9

A merger in which an entirely new firm is created and both the acquired and acquiring firms cease to exist is called a:

Accepted Answer

A)  divestiture. 
B)  consolidation. 
C)  tender offer. 
D)  spinoff. 
E)  conglomeration.

Question 10

Firm V was worth $450 and Firm A had a market value of $375. Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925. What is the NPV from the merger of Firm V and Firm A?

Accepted Answer

A)  $0 
B)  $50 
C)  $425 
D)  $450 
E)  None of these.

Question 11

The value of a target firm to the acquiring firm is equal to:

Accepted Answer

A)  the value of the target firm as a separate entity plus the incremental value derived from the acquisition. 
B)  the purchase cost of the target firm. 
C)  the value of the merged firm minus the value of the target firm as a separate entity. 
D)  the purchase cost plus the incremental value derived from the acquisition. 
E)  the incremental value derived from the acquisition.

Question 12

Alto and Solo are all-equity firms. Alto has 2,400 shares outstanding at a market price of $24 a share. Solo has 4,000 shares outstanding at a price of $17 a share. Solo is acquiring Alto for $63,000 in cash. The incremental value of the acquisition is $5,500. What is the net present value of acquiring Alto to Solo?

Accepted Answer

A)  $100 
B)  $400 
C)  $1,200 
D)  $2,400 
E)  $5,500

Question 13

Firm A is planning on merging with Firm B. Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A. Firm A currently has 3,000 shares of stock outstanding at a market price of $15 a share. Firm B has 1,000 shares outstanding at a price of $10 a share. What is the value of the merged firm?

Accepted Answer

A)  $25,000 
B)  $45,000 
C)  $55,000 
D)  $60,000 
E)  None of these

Question 14

Discuss why AT&T purchased T-Mobile in 2011.

Accepted Answer

The answer of Discuss why AT&T purchased T-Mobile in 2011....

Question 15

Goodday & Sons is being acquired by Baker,Inc. for $19,000 worth of Baker stock. Baker has 1,500 shares of stock outstanding at a price of $25 a share. Goodday has 1,000 shares outstanding with a market value of $16 a share. The incremental value of the acquisition is $2,000. How many new shares of stock will be issued to complete this acquisition?

Accepted Answer

A)  760.0 shares 
B)  840.0 shares 
C)  960.0 shares 
D)  1,187.5 shares 
E)  1,312.5 shares

Question 16

Which of the following is not true of an acquisition of stock or tender offer?

Accepted Answer

A)  No stockholder meetings need to be held. 
B)  No vote is required. 
C)  The bidding firm deals directly with the stockholders of the target firm. 
D)  In most cases, 100% of the stock of the target firm is tendered. 
E)  All of these are true of tender offers.

Question 17

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

Question 18

Which one of the following statements is correct?

Accepted Answer

A)  If an acquisition is made with cash, then the cost of that acquisition is dependent upon the acquisition gains. 
B)  Acquisitions made by exchanging shares of stock are normally taxable transactions. 
C)  The management of an acquiring firm may put itself at risk of losing control of the firm if they make acquisitions using shares of stock. 
D)  The stockholders of the acquiring firm will be better off when an acquisition results in losses if the acquisition was made with cash rather than with stock. 
E)  Acquisitions based on legitimate business purposes are not taxable transactions regardless of the means of financing used.

Question 19

Which of the following represent potential gains from an acquisition?
I. the replacement of ineffective managers
II. lower costs per unit produced
III. an increase in production size so that diseconomies of scale are realized
IV. spreading of overhead costs

Accepted Answer

A)  II and III only 
B)  I and IV only 
C)  I, II, and IV only 
D)  I, III, and IV only 
E)  I, II, III, and IV

Question 20

Western Fronts is being acquired by Eastern Slopes for $30,000 worth of Eastern Slopes stock. The incremental value of the acquisition is $2,000. Western Fronts has 1,900 shares of stock outstanding at a price of $15 a share. Eastern Slopes has 1,500 shares of stock outstanding at a price of $40 a share. What is the net present value of the acquisition given that the actual cost of the acquisition using company stock is $30,167?

Accepted Answer

A)  $167 
B)  $225 
C)  $333 
D)  $425 
E)  $433

Exam 29: Mergers, Acquisitions, and Divestitures