Question 1

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

An example of a horizontal merger would be

Accepted Answer

A)  Husky Oil and Sears. 
B)  McDonalds and Pillsbury. 
C)  Pepsi and Frito Lay. 
D)  Coca Cola and Canada Dry. 
A)  Husky Oil and Sears. 
B)  McDonalds and Pillsbury. 
C)  Pepsi and Frito Lay. 
D)  Coca Cola and Canada Dry.

Question 5

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

Question 6

List and describe nonfinancial motives for mergers.

Accepted Answer

1. Management Desires: Companies that ar

Question 7

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

Accepted Answer

A)  the book value. 
B)  the market value. 
C)  some premium over current market value. 
D)  some discount of current market value. 
A)  the book value. 
B)  the market value. 
C)  some premium over current market value. 
D)  some discount of current market value.

Question 8

If an acquiring firm's merger proposal was initially rejected by a target firm's management and board of directors, the acquiring firm could utilize a tender offer to gain control of the target firm.

Accepted Answer

A) True 
 B)False

Question 9

The King Solomon Mining Company is contemplating a cash tender offer for the outstanding shares of Roanoke Coal Corporation. Roanoke Coal is expected to provide $162,500 in aftertax cash flow (after tax income plus CCA) each year for the next 20 years. In addition, Roanoke has a $630,000 tax loss carry forward that King Solomon Mining can use over the next two years ($315,000 per year).
If King Solomon Mining's corporate tax rate is 34% and its cost of capital is 12%, what is the maximum cash price it should be willing to pay to acquire Roanoke?

Accepted Answer

Present value of aftertax cash flows: @#LAT-DLM&
C

Question 10

Which of the following is not a form of compensation that selling shareholders could receive?

Accepted Answer

A)  stock 
B)  cash 
C)  stock options 
D)  fixed income securities 
A)  stock 
B)  cash 
C)  stock options 
D)  fixed income securities

Question 11

White knights

Accepted Answer

A)  advise companies on ways to avoid being taken over. 
B)  offer a higher purchase price and a friendlier offer in the event of an unsolicited and unfriendly takeover attempt. 
C)  attempt to make money in the stock market on shares that are likely merger candidates. 
D)  buy depressed stock of quality companies when merger talks are discontinued. 
A)  advise companies on ways to avoid being taken over. 
B)  offer a higher purchase price and a friendlier offer in the event of an unsolicited and unfriendly takeover attempt. 
C)  attempt to make money in the stock market on shares that are likely merger candidates. 
D)  buy depressed stock of quality companies when merger talks are discontinued.

Question 12

Hostile takeovers are less common in Canada because

Accepted Answer

A)  Canadians are less risk oriented. 
B)  share ownership is not widely held. 
C)  companies have less cyclical cash flows. 
D)  share ownership is widely held. 
A)  Canadians are less risk oriented. 
B)  share ownership is not widely held. 
C)  companies have less cyclical cash flows. 
D)  share ownership is widely held.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

In a merger, the short-term and long-term effect on EPS varies according to the relative P/E ratios and the differential future growth rates of the two firms.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a form of compensation that selling shareholders could receive?

Accepted Answer

A)  stock 
B)  cash 
C)  fixed income securities 
D)  all of the other answers are forms of compensation 
A)  stock 
B)  cash 
C)  fixed income securities 
D)  all of the other answers are forms of compensation

Question 18

Selling shareholders may receive a price well above current market value.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  unfriendly take-over 
B)  divestiture 
C)  repurchase 
D)  leveraged buyout 
A)  unfriendly take-over 
B)  divestiture 
C)  repurchase 
D)  leveraged buyout

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

The portfolio effect in a merger has to do with

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

An example of a horizontal merger would be

Mergers in the 1980s were characterized by

List and describe nonfinancial motives for mergers.

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

If an acquiring firm's merger proposal was initially rejected by a target firm's management and board of directors, the acquiring firm could utilize a tender offer to gain control of the target firm.

Which of the following is not a form of compensation that selling shareholders could receive?

White knights

Hostile takeovers are less common in Canada because

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.

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

In a merger, the short-term and long-term effect on EPS varies according to the relative P/E ratios and the differential future growth rates of the two firms.

Which of the following is not a form of compensation that selling shareholders could receive?

Selling shareholders may receive a price well above current market value.

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

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

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Exam 20: External Growth Through Mergers

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

The portfolio effect in a merger has to do with

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

An example of a horizontal merger would be

Mergers in the 1980s were characterized by

List and describe nonfinancial motives for mergers.

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

If an acquiring firm's merger proposal was initially rejected by a target firm's management and board of directors, the acquiring firm could utilize a tender offer to gain control of the target firm.

Which of the following is not a form of compensation that selling shareholders could receive?

White knights

Hostile takeovers are less common in Canada because

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.

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

In a merger, the short-term and long-term effect on EPS varies according to the relative P/E ratios and the differential future growth rates of the two firms.

Which of the following is not a form of compensation that selling shareholders could receive?

Selling shareholders may receive a price well above current market value.

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

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