Question 1

Most mergers are horizontal in nature in order to avoid the potential complications involved with the elimination of competition.

Accepted Answer

A) True 
 B)False

Question 2

Discuss briefly the diversification benefits and pitfalls of a merger.

Accepted Answer

Diversification by combining entities wi

Question 3

Officers of a selling firm are almost always released.

Accepted Answer

A) True 
 B)False

Question 4

The financial motives for merger activity include all of the following EXCEPT

Accepted Answer

A)  the portfolio effect. 
B)  improved financial posture and greater debt. 
C)  the utilization of tax loss carryforwards. 
D)  vertical integration. 
A)  the portfolio effect. 
B)  improved financial posture and greater debt. 
C)  the utilization of tax loss carryforwards. 
D)  vertical integration.

Question 5

Selling shareholders who are offered cash or another company's shares in a merger may be willing to part with the shares they hold because

Accepted Answer

A)  the offered shares may be more marketable. 
B)  the price they are offered for their shares may be above book value or market value. 
C)  they can attain a greater degree of diversification as a result. 
D)  all of the other answers are correct 
A)  the offered shares may be more marketable. 
B)  the price they are offered for their shares may be above book value or market value. 
C)  they can attain a greater degree of diversification as a result. 
D)  all of the other answers are correct

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The stock market reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business, or if it seems to sharpen the company's focus.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  improved financing posture 
B)  portfolio effect 
C)  dilution of earnings per share 
D)  tax loss carryforward 
A)  improved financing posture 
B)  portfolio effect 
C)  dilution of earnings per share 
D)  tax loss carryforward

Question 9

The average premium paid in the late 1970s and 1980s merger movement was

Accepted Answer

A)  20-25%. 
B)  30-40%. 
C)  40-50%. 
D)  50-60%. 
A)  20-25%. 
B)  30-40%. 
C)  40-50%. 
D)  50-60%.

Question 10

To avoid an unfriendly takeover, management may institute one or more of several
takeover defences. List and explain in detail these defences.

Accepted Answer

These defensive tactics are sometimes re

Question 11

In light of accounting considerations, the acquiring company has some inducement to offer cash, and the acquired company would rather receive cash than face possible dilution.

Accepted Answer

A) True 
 B)False

Question 12

Synergy is said to occur when the whole is

Accepted Answer

A)  equal to the sum of the parts. 
B)  less than the sum of the parts. 
C)  greater than the sum of the parts. 
D)  greater than or equal to the sum of the parts. 
A)  equal to the sum of the parts. 
B)  less than the sum of the parts. 
C)  greater than the sum of the parts. 
D)  greater than or equal to the sum of the parts.

Question 13

Which of the following type of merger is most likely to lead to diversification benefits?

Accepted Answer

A)  horizontal merger 
B)  vertical merger 
C)  tax free exchange 
D)  conglomerate 
A)  horizontal merger 
B)  vertical merger 
C)  tax free exchange 
D)  conglomerate

Question 14

$\begin{array}{lcc}
&\text { Company A }&\text {Company B }\
\text { Total earnings } & \$ 2,000,000 & \$ 1,000,000 \
\text { Number of shares outstanding } & 400,000 & 100,000 \
\text { Earnings per share } & \$ 5.00 & \$ 10.00 \
\text { Price/earnings } & 6 \mathrm{X} & 3 \mathrm{X} \
\text { Market price share } & \$ 30.00 & \$ 30.00
\end{array}$ 
-Assume Company A pays a 20% premium for Company B in a pooling of interests' transaction. Calculate the post merger

Accepted Answer

A)  $10.00 
B)  $5.00 
C)  $7.50 
D)  $15.00 
E) P.S. for Alpha. 
A)  $10.00 
B)  $5.00 
C)  $7.50 
D)  $15.00 
E) P.S. for Alpha.

Question 15

Aardvark Software, Inc. can purchase all the stock of Zebra Computer Services for $1,000,000 in cash. Zebra is expected to generate net after-tax cash flows of $100,000 per year for each of the next 10 years. Aardvark should

Accepted Answer

A)  not purchase Zebra Computer Services. 
B)  purchase Zebra Computer Services. 
C)  purchase Zebra only if Aardvark's cost of capital is between 5% and 10%. 
D)  purchase Zebra only if Aardvark's cost of capital is above 10%. 
A)  not purchase Zebra Computer Services. 
B)  purchase Zebra Computer Services. 
C)  purchase Zebra only if Aardvark's cost of capital is between 5% and 10%. 
D)  purchase Zebra only if Aardvark's cost of capital is above 10%.

Question 16

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 17

Many of the mergers that occurred in the late 1970s occurred because of the relatively low values that the market accorded to many firms that were considered to be of high quality.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following would be true concerning the

Accepted Answer

A)  higher due to the merger. 
B)  the same with or without the merger. 
C)  lower without the merger. 
D)  lower with the merger. 
E) P.S. of Alpha Corp. in 5 years? Alpha's EPS would be 
A)  higher due to the merger. 
B)  the same with or without the merger. 
C)  lower without the merger. 
D)  lower with the merger. 
E) P.S. of Alpha Corp. in 5 years? Alpha's EPS would be

Question 19

Laura's Design Corporation has $400,000 in tax loss carryforwards. Vandenbosch Investment Consulting, a firm in the 40% tax bracket, would be willing to pay (on a nondiscounted basis) the sum of ______________ for the carryforward alone.

Accepted Answer

A)  $240,000 
B)  $160,000 
C)  $400,000 
D)  $1,000,000 
A)  $240,000 
B)  $160,000 
C)  $400,000 
D)  $1,000,000

Question 20

The desire to expand management and marketing capabilities is a financial motive for merging.

Accepted Answer

A) True 
 B)False

Most mergers are horizontal in nature in order to avoid the potential complications involved with the elimination of competition.

Discuss briefly the diversification benefits and pitfalls of a merger.

Officers of a selling firm are almost always released.

The financial motives for merger activity include all of the following EXCEPT

Selling shareholders who are offered cash or another company's shares in a merger may be willing to part with the shares they hold because

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

The stock market reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business, or if it seems to sharpen the company's focus.

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

The average premium paid in the late 1970s and 1980s merger movement was

To avoid an unfriendly takeover, management may institute one or more of several takeover defences. List and explain in detail these defences.

In light of accounting considerations, the acquiring company has some inducement to offer cash, and the acquired company would rather receive cash than face possible dilution.

Synergy is said to occur when the whole is

Which of the following type of merger is most likely to lead to diversification benefits?

Aardvark Software, Inc. can purchase all the stock of Zebra Computer Services for $1,000,000 in cash. Zebra is expected to generate net after-tax cash flows of $100,000 per year for each of the next 10 years. Aardvark should

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

Many of the mergers that occurred in the late 1970s occurred because of the relatively low values that the market accorded to many firms that were considered to be of high quality.

Which of the following would be true concerning the

Laura's Design Corporation has $400,000 in tax loss carryforwards. Vandenbosch Investment Consulting, a firm in the 40% tax bracket, would be willing to pay (on a nondiscounted basis) the sum of ______________ for the carryforward alone.

The desire to expand management and marketing capabilities is a financial motive for merging.

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

Most mergers are horizontal in nature in order to avoid the potential complications involved with the elimination of competition.

Discuss briefly the diversification benefits and pitfalls of a merger.

Officers of a selling firm are almost always released.

The financial motives for merger activity include all of the following EXCEPT

Selling shareholders who are offered cash or another company's shares in a merger may be willing to part with the shares they hold because

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

The stock market reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business, or if it seems to sharpen the company's focus.

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

The average premium paid in the late 1970s and 1980s merger movement was

To avoid an unfriendly takeover, management may institute one or more of several takeover defences. List and explain in detail these defences.

In light of accounting considerations, the acquiring company has some inducement to offer cash, and the acquired company would rather receive cash than face possible dilution.

Synergy is said to occur when the whole is

Which of the following type of merger is most likely to lead to diversification benefits?

Aardvark Software, Inc. can purchase all the stock of Zebra Computer Services for $1,000,000 in cash. Zebra is expected to generate net after-tax cash flows of $100,000 per year for each of the next 10 years. Aardvark should

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

Many of the mergers that occurred in the late 1970s occurred because of the relatively low values that the market accorded to many firms that were considered to be of high quality.

Which of the following would be true concerning the

Laura's Design Corporation has $400,000 in tax loss carryforwards. Vandenbosch Investment Consulting, a firm in the 40% tax bracket, would be willing to pay (on a nondiscounted basis) the sum of ______________ for the carryforward alone.

The desire to expand management and marketing capabilities is a financial motive for merging.

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