Question 1

Risk averse investors may discount the future expected performance of the merged firm at a lower rate.

Accepted Answer

A) True 
 B)False

Question 2

Historically, the Foreign Investment Review Agency:

Accepted Answer

A)  ensured no large takeovers of Canadian firms by foreigners occurred. 
B)  established Canada as a place for large foreign investment. 
C)  allowed an increasing number of unfriendly mergers and buyouts. 
D)  was a created through the passing of the Investment Canada Act. 
A)  ensured no large takeovers of Canadian firms by foreigners occurred. 
B)  established Canada as a place for large foreign investment. 
C)  allowed an increasing number of unfriendly mergers and buyouts. 
D)  was a created through the passing of the Investment Canada Act.

Question 3

In the event that Active Corp., which has a low P/E ratio, acquires Basic Corp., which has a higher P/E ratio, we could be assured one of the following would occur.

Accepted Answer

A)  Active Corp. will have an immediate increase in EPS. 
B)  Active Corp. will have an immediate decrease in EPS. 
C)  Active Corp. will have an immediate increase in the growth rate of EPS. 
D)  Active Corp. will have an immediate decrease in P/E. 
A)  Active Corp. will have an immediate increase in EPS. 
B)  Active Corp. will have an immediate decrease in EPS. 
C)  Active Corp. will have an immediate increase in the growth rate of EPS. 
D)  Active Corp. will have an immediate decrease in P/E.

Question 4

The primary advantage of a holding company is that it affords opportunities for leverage.

Accepted Answer

A) True 
 B)False

Question 5

One advantage of receiving stock instead of cash in a buy-out is the deferment of the tax payment until the stock received is actually sold.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following type of merger creates goodwill?

Accepted Answer

A)  Horizontal merger 
B)  Vertical merger 
C)  Pooling of interests 
D)  Purchase of assets 
A)  Horizontal merger 
B)  Vertical merger 
C)  Pooling of interests 
D)  Purchase of assets

Question 7

Which of the following is not a financial motive but rather an operating motive for merger and consolidation?

Accepted Answer

A)  The portfolio diversification effect. 
B)  Tax-loss carry-forward. 
C)  Greater financing capability. 
D)  Desire for greater size. 
A)  The portfolio diversification effect. 
B)  Tax-loss carry-forward. 
C)  Greater financing capability. 
D)  Desire for greater size.

Question 8

Mergers often improve the financing flexibility that a larger company has available.

Accepted Answer

A) True 
 B)False

Question 9

The portfolio effect in a merger has to do with:

Accepted Answer

A)  increasing EPS. 
B)  reducing risk. 
C)  creating tax advantages. 
D)  writing off goodwill. 
A)  increasing EPS. 
B)  reducing risk. 
C)  creating tax advantages. 
D)  writing off goodwill.

Question 10

In the CPA Canada Handbook, Section 3064, the amortization of goodwill is not permitted, although if the fair value of the goodwill drops, the loss in value is to be recognized on the income statement.

Accepted Answer

A) True 
 B)False

Question 11

A purchase of assets merger recording is desirable due to the possibility of the creation of goodwill on the books of the surviving firm.

Accepted Answer

A) True 
 B)False

Question 12

The advantage of a holding company:

Accepted Answer

A)  is that it seems to afford opportunities for leverage. 
B)  is that it always prevents foreign acquisition. 
C)  is the avoidance of competition laws. 
D)  is that it magnifies poor returns. 
A)  is that it seems to afford opportunities for leverage. 
B)  is that it always prevents foreign acquisition. 
C)  is the avoidance of competition laws. 
D)  is that it magnifies poor returns.

Question 13

List and describe nonfinancial motives for mergers.

Accepted Answer

1 Management Desires: Companies t

Question 14

Statutory amalgamation under the Canada Business Corporations Act requires all merger combinations of two or more firms to form an entirely new entity.

Accepted Answer

A) True 
 B)False

Question 15

United States style mergers rarely happen in Canada.

Accepted Answer

A) True 
 B)False

Question 16

Simon Manufacturing Co. is planning to acquire Garfunkel Engineering in a two-step buyout. Garfunkel has 1,500,000 shares of common stock currently outstanding, and the market price is currently at $25 per share. The first step of the buyout would offer to purchase 51% of Garfunkel Engineering common stock for $28 per share. The second step would be to exchange each remaining share of Garfunkel common for $5 in cash and a newly issued share of Simon Manufacturing convertible preferred stock, valued at $31.00 per share.
Simon Manufacturing's investment banker has suggested, as an alternative, a single-stage buyout at $32.50 per share for all of Garfunkel's common stock.
a) What is the total cost of the two-step buyout?
b) What is the total cost of the single step proposal?
c) If it wants to minimize the total cost of the acquisition, what should Simon Manufacturing do?

Accepted Answer

a) Total cost of two stage buyout
 @#IMG-DLM& b) T

Question 17

Hostile takeovers may be avoided in Canada due to:

Accepted Answer

A)  Canadians are more risk oriented. 
B)  A white knight investor. 
C)  companies have cyclical cash flows. 
D)  closely held companies. 
A)  Canadians are more risk oriented. 
B)  A white knight investor. 
C)  companies have cyclical cash flows. 
D)  closely held companies.

Question 18

A tender offer describes the attempted purchase of a firm with the consent of that firm's management.

Accepted Answer

A) True 
 B)False

Question 19

The elimination of overlapping functions and the meshing of two firms' strong areas or products creates the managerial incentive for mergers known as:

Accepted Answer

A)  horizontal integration. 
B)  vertical integration. 
C)  synergy. 
D)  the portfolio effect. 
A)  horizontal integration. 
B)  vertical integration. 
C)  synergy. 
D)  the portfolio effect.

Question 20

Which of the following is a form of compensation that selling shareholders could receive?

Accepted Answer

A)  Non-taxable interest income 
B)  Retirement savings top up 
C)  Fixed income securities 
D)  Management stock options 
A)  Non-taxable interest income 
B)  Retirement savings top up 
C)  Fixed income securities 
D)  Management stock options

Risk averse investors may discount the future expected performance of the merged firm at a lower rate.

Historically, the Foreign Investment Review Agency:

In the event that Active Corp., which has a low P/E ratio, acquires Basic Corp., which has a higher P/E ratio, we could be assured one of the following would occur.

The primary advantage of a holding company is that it affords opportunities for leverage.

One advantage of receiving stock instead of cash in a buy-out is the deferment of the tax payment until the stock received is actually sold.

Which of the following type of merger creates goodwill?

Which of the following is not a financial motive but rather an operating motive for merger and consolidation?

Mergers often improve the financing flexibility that a larger company has available.

The portfolio effect in a merger has to do with:

In the CPA Canada Handbook, Section 3064, the amortization of goodwill is not permitted, although if the fair value of the goodwill drops, the loss in value is to be recognized on the income statement.

A purchase of assets merger recording is desirable due to the possibility of the creation of goodwill on the books of the surviving firm.

The advantage of a holding company:

List and describe nonfinancial motives for mergers.

Statutory amalgamation under the Canada Business Corporations Act requires all merger combinations of two or more firms to form an entirely new entity.

United States style mergers rarely happen in Canada.

Hostile takeovers may be avoided in Canada due to:

A tender offer describes the attempted purchase of a firm with the consent of that firm's management.

The elimination of overlapping functions and the meshing of two firms' strong areas or products creates the managerial incentive for mergers known as:

Which of the following is a form of compensation that selling shareholders could receive?

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Underwriting

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Derivative Securities

International Financial Management

Filters

Exam 20: External Growth Through Mergers

Risk averse investors may discount the future expected performance of the merged firm at a lower rate.

Historically, the Foreign Investment Review Agency:

In the event that Active Corp., which has a low P/E ratio, acquires Basic Corp., which has a higher P/E ratio, we could be assured one of the following would occur.

The primary advantage of a holding company is that it affords opportunities for leverage.

One advantage of receiving stock instead of cash in a buy-out is the deferment of the tax payment until the stock received is actually sold.

Which of the following type of merger creates goodwill?

Which of the following is not a financial motive but rather an operating motive for merger and consolidation?

Mergers often improve the financing flexibility that a larger company has available.

The portfolio effect in a merger has to do with:

In the CPA Canada Handbook, Section 3064, the amortization of goodwill is not permitted, although if the fair value of the goodwill drops, the loss in value is to be recognized on the income statement.

A purchase of assets merger recording is desirable due to the possibility of the creation of goodwill on the books of the surviving firm.

The advantage of a holding company:

List and describe nonfinancial motives for mergers.

Statutory amalgamation under the Canada Business Corporations Act requires all merger combinations of two or more firms to form an entirely new entity.

United States style mergers rarely happen in Canada.

Hostile takeovers may be avoided in Canada due to:

A tender offer describes the attempted purchase of a firm with the consent of that firm's management.

The elimination of overlapping functions and the meshing of two firms' strong areas or products creates the managerial incentive for mergers known as:

Which of the following is a form of compensation that selling shareholders could receive?

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Underwriting

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Derivative Securities

International Financial Management

Filters