Question 1

An acquiring firm can bypass a target's management by making a tender offer directly to:

Accepted Answer

A) creditors. 
B) shareholders. 
C) preferred stockholders. 
D) founders. 
A) creditors. 
B) shareholders. 
C) preferred stockholders. 
D) founders. B

Question 2

A parent or holding company operates acquired businesses as:

Accepted Answer

A) divisions of a larger corporation which is the holding company itself. 
B) fully integrated parts of the acquiring firm. 
C) separate legal entities. 
D) a and c. 
A) divisions of a larger corporation which is the holding company itself. 
B) fully integrated parts of the acquiring firm. 
C) separate legal entities. 
D) a and c. D

Question 3

The late 1960's werethe era of the conglomerate merger.

Accepted Answer

A) True 
 B)False  True

Question 4

The appropriate discount rate in merger analysis is:

Accepted Answer

A) the acquirer's cost of capital because a merger is essentially a capital budgeting project. 
B) the acquirer's cost of equity because mergers are risky and a rate above the cost of capital is appropriate. 
C) the target's cost of equity because it best approximates the usually high risk inherent in this type of equity transaction. 
D) a judgmental rate reflecting the risk inherent in the transaction. 
A) the acquirer's cost of capital because a merger is essentially a capital budgeting project. 
B) the acquirer's cost of equity because mergers are risky and a rate above the cost of capital is appropriate. 
C) the target's cost of equity because it best approximates the usually high risk inherent in this type of equity transaction. 
D) a judgmental rate reflecting the risk inherent in the transaction.

Question 5

Although the courts usually permit bankrupt firms to continue in business, they protect creditors' interests by requiring:

Accepted Answer

A) that all disbursements be approved by the court. 
B) that all checks be countersigned by a bankruptcy judge. 
C) that a trustee oversees the company's operation while it is in bankruptcy. 
D) All of the above 
A) that all disbursements be approved by the court. 
B) that all checks be countersigned by a bankruptcy judge. 
C) that a trustee oversees the company's operation while it is in bankruptcy. 
D) All of the above

Question 6

A consolidation occurs when all of the combining legal entities dissolve, and a new entity with a new name is formed to continue into the future.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following defensive tactics is not appropriate before a takeover attempt is underway?

Accepted Answer

A) Poison pills 
B) Staggered election of directors 
C) Golden parachutes 
D) Greenmail 
A) Poison pills 
B) Staggered election of directors 
C) Golden parachutes 
D) Greenmail

Question 8

The aftermath of a leveraged buyout might include:

Accepted Answer

A) the immediate sale of the some of the firm's assets or divisions to pay down excessive debt. 
B) the prospect of failure from an inability to service the excessive debt. 
C) an imminent proxy fight. 
D) a or b. 
A) the immediate sale of the some of the firm's assets or divisions to pay down excessive debt. 
B) the prospect of failure from an inability to service the excessive debt. 
C) an imminent proxy fight. 
D) a or b.

Question 9

When an acquiring firm pays too much for an acquisition the real losers are the acquirer's stockholders.

Accepted Answer

A) True 
 B)False

Question 10

Holding companies enable a parent to control a subsidiary without owning all of its stock. As a general rule, 25% ownership of a widely held company virtually guarantees control.

Accepted Answer

A) True 
 B)False

Question 11

Acquiring a firm with a tax loss can shelter the acquirer's earnings, unless the primary reason for the merger is:

Accepted Answer

A) diversification to reduce risk. 
B) to benefit from economies of scale. 
C) to lock in the acquired firm's source of critical supplies. 
D) tax avoidance. 
A) diversification to reduce risk. 
B) to benefit from economies of scale. 
C) to lock in the acquired firm's source of critical supplies. 
D) tax avoidance.

Question 12

Two companies are competitors. The following facts about the companies and their industry are significant. 
a. Both firms use similar production, distribution, and sales techniques. 
b. One firm is losing money, while the other is profitable. 
c. There is a great deal of overhead in the business. 
d. The industry is dominated by a single firm that's about as big as these two combined. 
The two companies are considering a merger. State several arguments in favor of the combination.

Accepted Answer

(a) Synergies may be available by elimin

Question 13

When company A and company B combine to form company C, the action is referred to as a merger or an acquisition.

Accepted Answer

A) True 
 B)False

Question 14

A competent merger analysis calculates the maximum per share price that should be paid for an acquisition as:

Accepted Answer

A) the pre-merger market price plus the per share value of synergies. 
B) the NPV of the incremental cash flows coming from the acquisition divided by the number of shares of the target's stock that are outstanding. 
C) the targets terminal value. 
D) the NPV of the target's terminal value divided by the number of share tendered. 
A) the pre-merger market price plus the per share value of synergies. 
B) the NPV of the incremental cash flows coming from the acquisition divided by the number of shares of the target's stock that are outstanding. 
C) the targets terminal value. 
D) the NPV of the target's terminal value divided by the number of share tendered.

Question 15

A divestiture is unlikely to be undertaken because of:

Accepted Answer

A) high debt from an LBO. 
B) the need to diversify. 
C) poor performance. 
D) a lack of strategic fit. 
A) high debt from an LBO. 
B) the need to diversify. 
C) poor performance. 
D) a lack of strategic fit.

Question 16

When the net income of the combined companies after a merger exceeds the sum of the net incomes prior to the merger, ____ is said to exist.

Accepted Answer

A) goodwill 
B) synergy 
C) leverage 
D) greenmail 
A) goodwill 
B) synergy 
C) leverage 
D) greenmail

Question 17

The broad term "corporate restructuring" refers to:

Accepted Answer

A) changes in ownership. 
B) changes to capital structure. 
C) mergers and divestitures. 
D) All of the above 
A) changes in ownership. 
B) changes to capital structure. 
C) mergers and divestitures. 
D) All of the above

Question 18

Elliott Mfg. is considering acquiring Fox Inc. Fox's cash flows have been estimated in detail for the next three years and are $40M, $45M and $50M respectively. A terminal value consistent with that estimate has been calculated at $700M. The risk-adjusted discount rate for analysis is 12%. 
a. In total, what should Fox be worth to Elliott? 
b. If Fox, Inc. has 12 million shares outstanding, what is the most Elliott should offer, per share, for its stock? 
c. What growth rate did Elliott assume in calculating Fox's terminal value? 
d. If the growth rate assumption changes to 8%, what is the new maximum offer?

Accepted Answer

a. C01=40; C02=45; C03=50+700=750; NPV:

Question 19

Studies have shown that the high premiums paid in many mergers are just about always justified by increased post-merger cash flows that come from synergies and economies of scale.

Accepted Answer

A) True 
 B)False

Question 20

The stock of a target company is considered "in play" when:

Accepted Answer

A) an acquiring company begins working on a takeover plan. 
B) an acquiring company makes a tender offer. 
C) it becomes known that a company is an acquisition target. 
D) a tender offer is endorsed by the target's management. 
E) the acquiring company announces that it wants the target company. 
A) an acquiring company begins working on a takeover plan. 
B) an acquiring company makes a tender offer. 
C) it becomes known that a company is an acquisition target. 
D) a tender offer is endorsed by the target's management. 
E) the acquiring company announces that it wants the target company.

An acquiring firm can bypass a target's management by making a tender offer directly to:

A parent or holding company operates acquired businesses as:

The late 1960's werethe era of the conglomerate merger.

The appropriate discount rate in merger analysis is:

Although the courts usually permit bankrupt firms to continue in business, they protect creditors' interests by requiring:

A consolidation occurs when all of the combining legal entities dissolve, and a new entity with a new name is formed to continue into the future.

Which of the following defensive tactics is not appropriate before a takeover attempt is underway?

The aftermath of a leveraged buyout might include:

When an acquiring firm pays too much for an acquisition the real losers are the acquirer's stockholders.

Holding companies enable a parent to control a subsidiary without owning all of its stock. As a general rule, 25% ownership of a widely held company virtually guarantees control.

Acquiring a firm with a tax loss can shelter the acquirer's earnings, unless the primary reason for the merger is:

When company A and company B combine to form company C, the action is referred to as a merger or an acquisition.

A competent merger analysis calculates the maximum per share price that should be paid for an acquisition as:

A divestiture is unlikely to be undertaken because of:

When the net income of the combined companies after a merger exceeds the sum of the net incomes prior to the merger, ____ is said to exist.

The broad term "corporate restructuring" refers to:

Studies have shown that the high premiums paid in many mergers are just about always justified by increased post-merger cash flows that come from synergies and economies of scale.

The stock of a target company is considered "in play" when:

Foundations

Financial Background: a Review of Accounting Financial Statements and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System Corporate Governance and Interest

Time Value of Money

The Valuation and Characteristics of Bonds and Leasing

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends and Repurchases

The Management of Working Capital

International Finance

Filters

Exam 17: Corporate Restructuring

An acquiring firm can bypass a target's management by making a tender offer directly to:

A parent or holding company operates acquired businesses as:

The late 1960's werethe era of the conglomerate merger.

The appropriate discount rate in merger analysis is:

Although the courts usually permit bankrupt firms to continue in business, they protect creditors' interests by requiring:

A consolidation occurs when all of the combining legal entities dissolve, and a new entity with a new name is formed to continue into the future.

Which of the following defensive tactics is not appropriate before a takeover attempt is underway?

The aftermath of a leveraged buyout might include:

When an acquiring firm pays too much for an acquisition the real losers are the acquirer's stockholders.

Holding companies enable a parent to control a subsidiary without owning all of its stock. As a general rule, 25% ownership of a widely held company virtually guarantees control.

Acquiring a firm with a tax loss can shelter the acquirer's earnings, unless the primary reason for the merger is:

When company A and company B combine to form company C, the action is referred to as a merger or an acquisition.

A competent merger analysis calculates the maximum per share price that should be paid for an acquisition as:

A divestiture is unlikely to be undertaken because of:

When the net income of the combined companies after a merger exceeds the sum of the net incomes prior to the merger, ____ is said to exist.

The broad term "corporate restructuring" refers to:

Studies have shown that the high premiums paid in many mergers are just about always justified by increased post-merger cash flows that come from synergies and economies of scale.

The stock of a target company is considered "in play" when:

Foundations

Financial Background: a Review of Accounting Financial Statements and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System Corporate Governance and Interest

Time Value of Money

The Valuation and Characteristics of Bonds and Leasing

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends and Repurchases

The Management of Working Capital

International Finance

Filters