Question 1

Which of the following type of merger decreases competition?

Accepted Answer

A)  A horizontal merger 
B)  A vertical merger 
C)  A cash purchase 
D)  A stock-for-stock exchanges 
A)  A horizontal merger 
B)  A vertical merger 
C)  A cash purchase 
D)  A stock-for-stock exchanges

Question 2

One motivation to merge is through tax savings.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is NOT a motive for stockholders of the acquired company to sell?

Accepted Answer

A)  The opportunity to diversify 
B)  Gaining a tax advantage 
C)  An attractive price 
D)  Avoiding bias against smaller businesses 
A)  The opportunity to diversify 
B)  Gaining a tax advantage 
C)  An attractive price 
D)  Avoiding bias against smaller businesses

Question 4

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 5

A cash purchase of one company by another is similar to a capital budgeting decision.

Accepted Answer

A) True 
 B)False

Question 6

Antitrust policy can preclude the acquisition of a competitor.

Accepted Answer

A) True 
 B)False

Question 7

Selling stockholders generally receive a price below the current market value of their prior stock during a merger.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is NOT a method of avoiding a takeover?

Accepted Answer

A)  Increasing the firm's cash level 
B)  Moving corporate offices to advantageous states 
C)  Staggering the election of boards of directors 
D)  Buying back shares 
A)  Increasing the firm's cash level 
B)  Moving corporate offices to advantageous states 
C)  Staggering the election of boards of directors 
D)  Buying back shares

Question 9

In regard to two-step buyouts,

Accepted Answer

A)  the SEC highly approves of them. 
B)  the FTC highly approves of them. 
C)  the SEC is keeping a close eye on them. 
D)  the FTC is keeping a close eye on them. 
A)  the SEC highly approves of them. 
B)  the FTC highly approves of them. 
C)  the SEC is keeping a close eye on them. 
D)  the FTC is keeping a close eye on them.

Question 10

Risk-averse investors may discount the future earnings of the merged firm at a higher rate if they move in different directions during business cycles.

Accepted Answer

A) True 
 B)False

Question 11

The two-step buyout is a recent merger ploy that has which of the following characteristics?

Accepted Answer

A)  It is negotiated in a social, rather than a business setting. 
B)  The acquiring firm offers to pay a very high price for the target company's stock, and a short time later announces another price that may be higher or lower. 
C)  The acquiring firm offers to pay a very high price for the target company's stock for a limited time only, after which it will pay a lower price. 
D)  It forces stockholders to sell out. 
A)  It is negotiated in a social, rather than a business setting. 
B)  The acquiring firm offers to pay a very high price for the target company's stock, and a short time later announces another price that may be higher or lower. 
C)  The acquiring firm offers to pay a very high price for the target company's stock for a limited time only, after which it will pay a lower price. 
D)  It forces stockholders to sell out.

Question 12

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 13

Synergy is

Accepted Answer

A)  the 2 + 2 = 3 effect. 
B)  the 2 + 2 = 4 effect. 
C)  the 2 + 2 = 5 effect. 
D)  always present in a merger. 
A)  the 2 + 2 = 3 effect. 
B)  the 2 + 2 = 4 effect. 
C)  the 2 + 2 = 5 effect. 
D)  always present in a merger.

Question 14

If an acquiring firm's merger proposal was 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 15

Synergy effect is said to happen when the merged companies are able to work together and eliminate some of the repeated divisional tasks, proving that the company is better off being merged.

Accepted Answer

A) True 
 B)False

Question 16

The stock market's 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 17

A "takeover tender offer" lets a company attempt to acquire a target firm against its will.

Accepted Answer

A) True 
 B)False

Question 18

The Prada Corporation is considering a merger with the Stone Company, which has 500,000 outstanding shares selling for $30. An investment banker has advised that to succeed in its merger, Prada Corp. would have to offer $45 per share for Stone's stock. Currently, Prada Corp. stock is selling for $25. How many shares of Prada Corp. stock would have to be exchanged to acquire all of Stone Company's stock?

Accepted Answer

A)  266,667 
B)  600,000 
C)  900,000 
D)  20,000 
A)  266,667 
B)  600,000 
C)  900,000 
D)  20,000

Question 19

Vertical integration usually represents acquisition of a competitor.

Accepted Answer

A) True 
 B)False

Question 20

The typical merger premium is _______.

Accepted Answer

A)  0-20% 
B)  40% 
C)  40-60% 
D)  80-100% 
A)  0-20% 
B)  40% 
C)  40-60% 
D)  80-100%

Which of the following type of merger decreases competition?

One motivation to merge is through tax savings.

Which of the following is NOT a motive for stockholders of the acquired company to sell?

Synergy is said to occur when the whole is

A cash purchase of one company by another is similar to a capital budgeting decision.

Antitrust policy can preclude the acquisition of a competitor.

Selling stockholders generally receive a price below the current market value of their prior stock during a merger.

Which of the following is NOT a method of avoiding a takeover?

In regard to two-step buyouts,

Risk-averse investors may discount the future earnings of the merged firm at a higher rate if they move in different directions during business cycles.

The two-step buyout is a recent merger ploy that has which of the following characteristics?

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

Synergy is

If an acquiring firm's merger proposal was 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.

Synergy effect is said to happen when the merged companies are able to work together and eliminate some of the repeated divisional tasks, proving that the company is better off being merged.

The stock market's 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.

A "takeover tender offer" lets a company attempt to acquire a target firm against its will.

Vertical integration usually represents acquisition of a competitor.

The typical merger premium is _______.

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

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

Which of the following type of merger decreases competition?

One motivation to merge is through tax savings.

Which of the following is NOT a motive for stockholders of the acquired company to sell?

Synergy is said to occur when the whole is

A cash purchase of one company by another is similar to a capital budgeting decision.

Antitrust policy can preclude the acquisition of a competitor.

Selling stockholders generally receive a price below the current market value of their prior stock during a merger.

Which of the following is NOT a method of avoiding a takeover?

In regard to two-step buyouts,

Risk-averse investors may discount the future earnings of the merged firm at a higher rate if they move in different directions during business cycles.

The two-step buyout is a recent merger ploy that has which of the following characteristics?

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

Synergy is

If an acquiring firm's merger proposal was 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.

Synergy effect is said to happen when the merged companies are able to work together and eliminate some of the repeated divisional tasks, proving that the company is better off being merged.

The stock market's 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.

A "takeover tender offer" lets a company attempt to acquire a target firm against its will.

Vertical integration usually represents acquisition of a competitor.

The typical merger premium is _______.

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

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants, and Derivatives

International Financial Management

Filters