Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

Accepted Answer

A) True 
 B)False  True

Question 3

Mergers in the 1980s were characterized by

Accepted Answer

A)  companies finding it cheaper to expand through mergers than through internal growth. 
B)  established, conservative firms leaving the merger market. 
C)  a decreasing number of unfriendly mergers and buyouts. 
D)  all of the other answers are correct. 
A)  companies finding it cheaper to expand through mergers than through internal growth. 
B)  established, conservative firms leaving the merger market. 
C)  a decreasing number of unfriendly mergers and buyouts. 
D)  all of the other answers are correct. A

Question 4

Poison pills are usually put in place when one shareholder acquires a certain number of outstanding shares.

Accepted Answer

A) True 
 B)False

Question 5

The Sheridan Corporation is considering a merger with the Kent Company which has 600,000 outstanding shares selling for $20. An investment dealer has advised that to succeed in its merger Sheridan Corp. would have to offer $40 per share for Kent's stock. Sheridan Corp. stock is selling for $25. How many shares of Sheridan Corp. stock would have to be exchanged to acquire all of Kent's stock?

Accepted Answer

A)  960,000 
B)  600,000 
C)  750,000 
D)  not enough information to calculate. 
A)  960,000 
B)  600,000 
C)  750,000 
D)  not enough information to calculate.

Question 6

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

Accepted Answer

A)  improved financing posture 
B)  portfolio effect 
C)  tax loss carryforward 
D)  all of the other answers are benefits 
A)  improved financing posture 
B)  portfolio effect 
C)  tax loss carryforward 
D)  all of the other answers are benefits

Question 7

$\begin{array}{lrr}
&\text {Alpha}&\text {Beta}\ 
\text { Total earnings } & \$ 1,000,000 & \$ 600,000 \
\text { Number of shares outstanding } & 400,000 & 200,000 \
\text { Earnings per share } & \$ 2.50 & \$ 3.00 \
\text { Price/earnings } & 12 \mathrm{X} & 10 \mathrm{X} \
\text { Market price/share } & \$ 30.00 & \$ 30.00
\end{array}$

-Assume Alpha pays a 20% premium for Beta in a pooling of interests' transaction. Calculate the post merger

Accepted Answer

A)  $2.50 
B)  $3.00 
C)  $3.50 
D)  $4.00 
E) P.S. for Alpha. 
A)  $2.50 
B)  $3.00 
C)  $3.50 
D)  $4.00 
E) P.S. for Alpha.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The write off of goodwill is a tax deductible expense.

Accepted Answer

A) True 
 B)False

Question 10

Company A buys Company B for $3,500,000. Company A had a pre-merger net worth of $8,000,000; B's net worth was $2,000,000. The transaction was accounted for as a pooling of interests. Company A wants to write off any available goodwill as slowly as allowable. How much would Company A write off each year?

Accepted Answer

A)  $112,500 
B)  $ 37,500 
C)  $150,000 
D)  0 
A)  $112,500 
B)  $ 37,500 
C)  $150,000 
D)  0

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

The Celluloid Collar Corporation has $360,000 in tax loss carryforwards. The Bowstring Shirt Company, a firm in the 30% tax bracket, would be willing to pay (on a nondiscounted basis) the sum of ______________ for the carryforward alone.

Accepted Answer

A)  $108,000 
B)  $252,000 
C)  $350,000 
D)  $1,200,000 
A)  $108,000 
B)  $252,000 
C)  $350,000 
D)  $1,200,000

Question 13

The rising ratio of divestitures to new acquisitions which has occurred in the later part of this century suggests that

Accepted Answer

A)  poison pills are no longer effective as a defence against takeovers. 
B)  too much diversification strained the operating capabilities of many firms. 
C)  the portfolio effect has been a highly successful method of reducing risk. 
D)  multinational firms are increasingly considered highly risky investments. 
A)  poison pills are no longer effective as a defence against takeovers. 
B)  too much diversification strained the operating capabilities of many firms. 
C)  the portfolio effect has been a highly successful method of reducing risk. 
D)  multinational firms are increasingly considered highly risky investments.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Synergy is

Accepted Answer

A)  the 2 + 2 = 3 effect. 
B)  the 2 + 2 = 4 effect. 
C)  the 2 + 2 = 5 effect. 
D)  always present in a merger 
A)  the 2 + 2 = 3 effect. 
B)  the 2 + 2 = 4 effect. 
C)  the 2 + 2 = 5 effect. 
D)  always present in a merger

Question 16

The merger movement rebounded in 1990s after a few slow years due to which of the following factors?

Accepted Answer

A)  higher interest rates 
B)  changing regulation 
C)  less competition 
D)  All of these 
A)  higher interest rates 
B)  changing regulation 
C)  less competition 
D)  All of these

Question 17

Vertical integration represents acquisition of a competitor.

Accepted Answer

A) True 
 B)False

Question 18

A tax loss carry-forward is a benefit to the acquired firm's shareholders.

Accepted Answer

A) True 
 B)False

Question 19

Leveraged buyouts are restricted to "outside" tender offers.

Accepted Answer

A) True 
 B)False

Question 20

An unfriendly takeover can always be stopped by invoking a poison pill under the Companies Act.

Accepted Answer

A) True 
 B)False

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

Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

Mergers in the 1980s were characterized by

Poison pills are usually put in place when one shareholder acquires a certain number of outstanding shares.

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

Alpha Beta Total earnings \ 1,000,000 \ 600,000 Number of shares outstanding 400,000 200,000 Earnings per share \ 2.50 \ 3.00 Price/earnings 12 10 Market price/share \ 30.00 \ 30.00 -Assume Alpha pays a 20% premium for Beta in a pooling of interests' transaction. Calculate the post merger

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

The write off of goodwill is a tax deductible expense.

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

The Celluloid Collar Corporation has $360,000 in tax loss carryforwards. The Bowstring Shirt Company, a firm in the 30% tax bracket, would be willing to pay (on a nondiscounted basis) the sum of ______________ for the carryforward alone.

The rising ratio of divestitures to new acquisitions which has occurred in the later part of this century suggests that

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

Synergy is

The merger movement rebounded in 1990s after a few slow years due to which of the following factors?

Vertical integration represents acquisition of a competitor.

A tax loss carry-forward is a benefit to the acquired firm's shareholders.

Leveraged buyouts are restricted to "outside" tender offers.

An unfriendly takeover can always be stopped by invoking a poison pill under the Companies Act.

The Goals and Activities 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 Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

International Financial Management

Filters

Exam 20: External Growth Through Mergers

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

Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

Mergers in the 1980s were characterized by

Poison pills are usually put in place when one shareholder acquires a certain number of outstanding shares.

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

Alpha Beta Total earnings \ 1,000,000 \ 600,000 Number of shares outstanding 400,000 200,000 Earnings per share \ 2.50 \ 3.00 Price/earnings 12 10 Market price/share \ 30.00 \ 30.00 -Assume Alpha pays a 20% premium for Beta in a pooling of interests' transaction. Calculate the post merger

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

The write off of goodwill is a tax deductible expense.

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

The Celluloid Collar Corporation has $360,000 in tax loss carryforwards. The Bowstring Shirt Company, a firm in the 30% tax bracket, would be willing to pay (on a nondiscounted basis) the sum of ______________ for the carryforward alone.

The rising ratio of divestitures to new acquisitions which has occurred in the later part of this century suggests that

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

Synergy is

The merger movement rebounded in 1990s after a few slow years due to which of the following factors?

Vertical integration represents acquisition of a competitor.

A tax loss carry-forward is a benefit to the acquired firm's shareholders.

Leveraged buyouts are restricted to "outside" tender offers.

An unfriendly takeover can always be stopped by invoking a poison pill under the Companies Act.

The Goals and Activities 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 Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

International Financial Management

Filters