Question 1

It appears that target companies capture most of the gains in hostile takeovers.

Accepted Answer

A) True 
 B)False

Question 2

Examples of shark-repellent charter amendments include

Accepted Answer

A) supermajority. 
B) waiting period. 
C) supermajority and waiting period. 
D) supermajority, waiting period, restricted voting rights, and staggered board. 
A) supermajority. 
B) waiting period. 
C) supermajority and waiting period. 
D) supermajority, waiting period, restricted voting rights, and staggered board.

Question 3

Explain the central tenet of the Clayton Act of 1914.

Accepted Answer

The Clayton Act of 1914 forbids an acqui

Question 4

Briefly discuss the different forms of acquisition.

Accepted Answer

Basically, an acquisition can take three

Question 5

The "Bootstrap Game" may mislead investors regarding the prospects for a merged firm. How are investors potentially misled?

Accepted Answer

A) The firm's management generates cost savings via temporary layoffs of highly paid executives. 
B) The firm gains intellectual property in a merger but then divests the operations of the target firm. 
C) The firm's management changes the name of an acquired firm to feign diversification. 
D) The firm acquires a target with low a P/E ratio, which generates short-term earnings per share growth without any true economic advantage. 
A) The firm's management generates cost savings via temporary layoffs of highly paid executives. 
B) The firm gains intellectual property in a merger but then divests the operations of the target firm. 
C) The firm's management changes the name of an acquired firm to feign diversification. 
D) The firm acquires a target with low a P/E ratio, which generates short-term earnings per share growth without any true economic advantage.

Question 6

Firm A has a value of $100 million and Firm B has a value of $70 million. Merging the two would enable cost savings with a present value of $20 million. Firm A purchases Firm B for $75 million. What is the cost of this merger?

Accepted Answer

A) $30 million 
B) $20 million 
C) $5 million 
D) $10 million 
A) $30 million 
B) $20 million 
C) $5 million 
D) $10 million

Question 7

Firm A has a value of $100 million and Firm B has a value of $70 million. Merging the two would enable cost savings with a present value of $20 million. Firm A purchases Firm B for $75 million. What is the gain from this merger?

Accepted Answer

A) $30 million 
B) $20 million 
C) $15 million 
D) $75 million 
A) $30 million 
B) $20 million 
C) $15 million 
D) $75 million

Question 8

What are the tax consequences of a taxable merger?

Accepted Answer

A) Selling shareholders can defer any capital gain until they sell their shares in the merged company. 
B) Depreciation tax shields are unchanged by the merger. 
C) Selling shareholders must recognize any capital gain. 
D) All goodwill must be written off immediately. 
A) Selling shareholders can defer any capital gain until they sell their shares in the merged company. 
B) Depreciation tax shields are unchanged by the merger. 
C) Selling shareholders must recognize any capital gain. 
D) All goodwill must be written off immediately.

Question 9

Briefly explain what is meant by "the cost of acquisition" in the context of a merger.

Accepted Answer

The cost of an acquisition is the cash p

Question 10

Many mergers that appear to make economic sense fail because managers cannot handle the complex task of integrating two firms with different

Accepted Answer

A) production processes. 
B) production processes and accounting methods. 
C) corporate cultures. 
D) production processes, accounting methods, and corporate cultures. 
A) production processes. 
B) production processes and accounting methods. 
C) corporate cultures. 
D) production processes, accounting methods, and corporate cultures.

Question 11

The following data on a merger are given:
 
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock. Calculate the gain from the merger.

Accepted Answer

A) $600 
B) $150 
C) $550 
D) $700 
A) $600 
B) $150 
C) $550 
D) $700

Question 12

Firm A has a value of $100 million and Firm B has a value of $60 million. Merging the two would enable cost savings with a present value of $20 million. Firm A purchases Firm B for $65 million. How much do Firm A's shareholders gain from this merger?

Accepted Answer

A) $30 million 
B) $20 million 
C) $15 million 
D) $5 million 
A) $30 million 
B) $20 million 
C) $15 million 
D) $5 million

Question 13

The DOC Corporation with a book value of $20 million and a market value of $30 million has acquired the CIC Corporation with a book value of $6 million and a market value of $8 million at a price of $9 million. If the transaction is a purchase, will there be any goodwill, and if so, what is the amount of goodwill?

Accepted Answer

A) No goodwill; 0 
B) Yes, goodwill; 3 
C) Yes, goodwill; 1 
D) Goodwill cannot be calculated with the information given. 
A) No goodwill; 0 
B) Yes, goodwill; 3 
C) Yes, goodwill; 1 
D) Goodwill cannot be calculated with the information given.

Question 14

Supermajorities give shareholders more control over the firm.

Accepted Answer

A) True 
 B)False

Question 15

The easiest task for the managers of an acquiring firm is the integration of the target firm.

Accepted Answer

A) True 
 B)False

Question 16

Briefly explain the term economies of scale.

Accepted Answer

The natural goal of horizontal mergers i

Question 17

The PEN Corporation with a book value of $20 million and a market value of $30 million has acquired the CNC Corporation with a book value of $6 million and a market value of $8 million at a price of $9 million. If the transaction is a purchase, then the total assets on the books of the new company will be

Accepted Answer

A) $38 million. 
B) $39 million. 
C) $29 million. 
D) $26 million. 
A) $38 million. 
B) $39 million. 
C) $29 million. 
D) $26 million.

Question 18

If Firm A acquires Firm B for cash, then the cost of the merger is equal to the cash payment minus Firm B's value as a separate entity.

Accepted Answer

A) True 
 B)False

Exam 31: Mergers

It appears that target companies capture most of the gains in hostile takeovers.

Examples of shark-repellent charter amendments include

Explain the central tenet of the Clayton Act of 1914.

Briefly discuss the different forms of acquisition.

The "Bootstrap Game" may mislead investors regarding the prospects for a merged firm. How are investors potentially misled?

Firm A has a value of $100 million and Firm B has a value of $70 million. Merging the two would enable cost savings with a present value of $20 million. Firm A purchases Firm B for $75 million. What is the cost of this merger?

Firm A has a value of $100 million and Firm B has a value of $70 million. Merging the two would enable cost savings with a present value of $20 million. Firm A purchases Firm B for $75 million. What is the gain from this merger?

What are the tax consequences of a taxable merger?

Briefly explain what is meant by "the cost of acquisition" in the context of a merger.

Many mergers that appear to make economic sense fail because managers cannot handle the complex task of integrating two firms with different

The following data on a merger are given: Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock. Calculate the gain from the merger.

Firm A has a value of $100 million and Firm B has a value of $60 million. Merging the two would enable cost savings with a present value of $20 million. Firm A purchases Firm B for $65 million. How much do Firm A's shareholders gain from this merger?

Supermajorities give shareholders more control over the firm.

The easiest task for the managers of an acquiring firm is the integration of the target firm.

Briefly explain the term economies of scale.

If Firm A acquires Firm B for cash, then the cost of the merger is equal to the cash payment minus Firm B's value as a separate entity.

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Corporate Restructuring

Governance and Corporate Control Around the World

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