Exam 20: External Growth Through Mergers

Synergy is:

While a horizontal merger may improve profitability, it will not necessarily reduce the portfolio risk of the acquiring company.

The potential of a tax loss carry-forward has no effect when considering the acquisition of a company.

The price that a company has to pay to purchase another firm is typically:

The impact on EPS is influenced by all but the:

White knights:

A business combination of two or more companies in which the resulting firm maintains the identity of the acquiring company is defined as a:

Leveraged buyout occur to firms that have an unusually large cash/total assets position.

Shareholders do not like a white knight since it always results in their receiving a lower share price.

A tax loss carry-forward of $1,000,000 for company ZZZ is not usually worth $1,000,000 in present value to a firm that might acquire company ZZZ.

Which of the following is a tender offer that utilizes borrowed funds and the acquired firm's assets as collateral?

Synergy is said to take place when the whole is less than the sum of the parts.

Which of the following is not a potential benefit of a merger?

In a horizontal merger, the integration that occurs comes from acquiring companies that supply resources to the company's production process.

-Which of the following would be true concerning the EPS of Company A in 5 years? Company A's EPS would be:

Goodwill may be created when a pooling of interests' merger is utilized.

Which of the following would be true concerning the EPS of Alpha Corp. in 5 years? Alpha's EPS would be:

Officers of a selling firm are almost always released.

The portfolio effect after a merger should provide the firm with risk reduction benefits that result in:

The subsidiaries of a holding company are separate legal entities, and one cannot force the bankruptcy of another.