Question 1

All of the shares of GMO Company are owned by Hybrid Inc. GMO Inc. is

Accepted Answer

A) a holding company. 
B) a parent corporation. 
C) a subsidiary corporation. 
D) none of the choices. 
A) a holding company. 
B) a parent corporation. 
C) a subsidiary corporation. 
D) none of the choices. C

Question 2

Natural Food Corporation proposes to combine with Organic Produce Inc., and asks Natural Food shareholders to vote on the proposal. Pi, a Natural Food shareholder, votes against it, but is outvoted by the other shareholders. Is there an action that Pi can take to avoid being forced to go along with the transaction? If so, what can he do? After the combination, Organic Produce ceases to exist. Natural Food is the surviving firm. What type of combination is this?

Accepted Answer

Pi, and any other shareholder who disapproves of a merger (or a consolidation), may seek, and may be entitled to be paid, fair value for his or her shares. This right to seek fair value is known as appraisal rights. It constitutes the exclusive remedy for shareholders that are dissatisfied with the price that they received for their stock in the circumstances in this problem, and exists only in those states that specifically provide for it. 
The procedure for asserting this right varies. Generally, the corporation must notify the shareholders of the right's availability, and the dissenting shareholders must file a notice of intent to demand payment with the corporation before the shareholders vote on the transaction. The corporation must make a written offer to buy the shares, accompanying the offer with a current balance sheet and income statement. The "fair value" is normally the value on the day before the date on which the shareholders' vote is taken. If the parties do not agree on "fair value," however, a court may determine it. These rights will be lost if they are not adhered to strictly. 
The combination between Natural Food and Organic Produce is a merger, in which one of the previously existing corporations (Natural Food)absorbed the other and the absorbed corporation (Organic Produce)ceased to exist.

Question 3

To resist a takeover, a target company may make a self-tender .

Accepted Answer

A) True 
 B)False  True

Question 4

Outlook Inc. merges with Pinnacle Inc. Only Pinnacle remains. Outlook owed money to Quest Bank and other creditors. With respect to these debts, in the merger Pinnacle assumes

Accepted Answer

A) none. 
B) only those incurred after the merger was proposed. 
C) an amount equal to the ratio of the firms' pre-merger market values. 
D) all. 
A) none. 
B) only those incurred after the merger was proposed. 
C) an amount equal to the ratio of the firms' pre-merger market values. 
D) all.

Question 5

Doris wants to form a new firm-eBeats-to market a new app. Fees are required to form all of the following business organizations except

Accepted Answer

A) a sole proprietorship. 
B) a corporation. 
C) a limited partnership. 
D) a limited liability company. 
A) a sole proprietorship. 
B) a corporation. 
C) a limited partnership. 
D) a limited liability company.

Question 6

A short-form merger is the acquisition of control over a corporation through a purchase of stock.

Accepted Answer

A) True 
 B)False

Question 7

Lipstick Inc. merges with Mascara Inc. Only Mascara remains. The articles of merger

Accepted Answer

A) amend the articles of Mascara. 
B) disappear once the merger is complete. 
C) create an entirely new organization. 
D) take the place of the articles of Mascara. 
A) amend the articles of Mascara. 
B) disappear once the merger is complete. 
C) create an entirely new organization. 
D) take the place of the articles of Mascara.

Question 8

A takeover is the acquisition of control over a corporation through a purchase of substantially all of its assets.

Accepted Answer

A) True 
 B)False

Question 9

Rock Quarry Inc. merges with Stonework Inc. Only Stonework remains. Rock Quarry held rights in certain real property. With respect to these assets, in the merger Stonework assumes

Accepted Answer

A) none. 
B) only those acquired after the merger was proposed. 
C) an amount equal to the ratio of the firms' pre-merger market values. 
D) all. 
A) none. 
B) only those acquired after the merger was proposed. 
C) an amount equal to the ratio of the firms' pre-merger market values. 
D) all.

Question 10

Corporate creditors are required to approve a plan of consolidation.

Accepted Answer

A) True 
 B)False

Question 11

An appraisal right is available only when a federal statute specifically provides for it.

Accepted Answer

A) True 
 B)False

Question 12

Repair Inc. issues a plan to combine operations with Service Company. A shareholder who disapproves of the deal may be entitled to an appraisal right if the combination is

Accepted Answer

A) a merger or a short-from merger. 
B) none of the choices. 
C) a purchase of substantially all of the assets of either corporation. 
D) a dissolution or winding up of either corporation. 
A) a merger or a short-from merger. 
B) none of the choices. 
C) a purchase of substantially all of the assets of either corporation. 
D) a dissolution or winding up of either corporation.

Question 13

Mergers, consolidations, and share exchanges are authorized by

Accepted Answer

A) all states. 
B) most states. 
C) no states. 
D) the federal government. 
A) all states. 
B) most states. 
C) no states. 
D) the federal government.

Question 14

Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist. The formation of Fuel Inc. is

Accepted Answer

A) a takeover. 
B) a consolidation. 
C) a liquidation. 
D) a share exchange. 
A) a takeover. 
B) a consolidation. 
C) a liquidation. 
D) a share exchange.

Question 15

The shareholder's appraisal right does not normally apply to sales of substantially all of the corporate assets.

Accepted Answer

A) True 
 B)False

Question 16

A shareholder may not petition a court for corporate dissolution.

Accepted Answer

A) True 
 B)False

Question 17

Sweet Company acquires all of the assets of Tart Inc. by direct purchase. Approval of the deal between Sweet and Tart is subject to the approval of the shareholders of

Accepted Answer

A) both corporations. 
B) Sweet. 
C) Tart. 
D) neither corporation. 
A) both corporations. 
B) Sweet. 
C) Tart. 
D) neither corporation.

Question 18

Lender Inc. owns all of the shares of Mortgage Company. Lender Inc. is

Accepted Answer

A) a holding company. 
B) a parent corporation. 
C) a subsidiary corporation. 
D) all of the choices. 
A) a holding company. 
B) a parent corporation. 
C) a subsidiary corporation. 
D) all of the choices.

Question 19

Enchilada Inc. seeks to purchase a substantial number of the voting shares of Fajita Company. Enchilada deals directly with the shareholders of Fajita. Enchilada offers a price higher than the market price of Fajita's shares. This is

Accepted Answer

A) a poison pill. 
B) a tender offer. 
C) a self-tender. 
D) a breach of the business judgment rule. 
A) a poison pill. 
B) a tender offer. 
C) a self-tender. 
D) a breach of the business judgment rule.

Question 20

Generally, a corporation that is selling all of its assets must obtain the approval of the shareholders.

Accepted Answer

A) True 
 B)False

Exam 38: Mergers and Takeovers

All of the shares of GMO Company are owned by Hybrid Inc. GMO Inc. is

To resist a takeover, a target company may make a self-tender .

Outlook Inc. merges with Pinnacle Inc. Only Pinnacle remains. Outlook owed money to Quest Bank and other creditors. With respect to these debts, in the merger Pinnacle assumes

Doris wants to form a new firm-eBeats-to market a new app. Fees are required to form all of the following business organizations except

A short-form merger is the acquisition of control over a corporation through a purchase of stock.

Lipstick Inc. merges with Mascara Inc. Only Mascara remains. The articles of merger

A takeover is the acquisition of control over a corporation through a purchase of substantially all of its assets.

Rock Quarry Inc. merges with Stonework Inc. Only Stonework remains. Rock Quarry held rights in certain real property. With respect to these assets, in the merger Stonework assumes

Corporate creditors are required to approve a plan of consolidation.

An appraisal right is available only when a federal statute specifically provides for it.

Repair Inc. issues a plan to combine operations with Service Company. A shareholder who disapproves of the deal may be entitled to an appraisal right if the combination is

Mergers, consolidations, and share exchanges are authorized by

Dynamo Corporation combines its assets and liabilities with those of Energy Company to form Fuel Inc. Dynamo and Energy cease to exist. The formation of Fuel Inc. is

The shareholder's appraisal right does not normally apply to sales of substantially all of the corporate assets.

A shareholder may not petition a court for corporate dissolution.

Sweet Company acquires all of the assets of Tart Inc. by direct purchase. Approval of the deal between Sweet and Tart is subject to the approval of the shareholders of

Lender Inc. owns all of the shares of Mortgage Company. Lender Inc. is

Enchilada Inc. seeks to purchase a substantial number of the voting shares of Fajita Company. Enchilada deals directly with the shareholders of Fajita. Enchilada offers a price higher than the market price of Fajita's shares. This is

Generally, a corporation that is selling all of its assets must obtain the approval of the shareholders.

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