Exam 20: External Growth Through Mergers

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

For mergers occurring after 2001, goodwill must be amortized and written off over 40 years or less.

After a merger has been announced, subsequent cancellation generally causes the potential acquiree's stock to decline in value.

The "two-step buyout" procedure induces stockholders to delay their reaction to the offer, since they will receive a higher price later.

Leveraged takeovers occur to firms that have an unusually large cash/total assets position.

The earnings-per-share impact of a merger is influenced by relative price-earnings ratios and the terms of exchange.

If the acquiring firm's P/E ratio is greater than the P/E of the acquired firm, the surviving firm will automatically get an increase in earnings per share.

When a tobacco firm merges with a steel company, it would be called

Aardvark Software Inc. can purchase all the stock of Zebra Computer Services for $1,200,000 in cash. Zebra is expected to generate net after-tax cash flows of $100,000 per year for each of the next 12 years. Based solely on the cash flow analysis and the facts provided, Aardvark should

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

A tax loss carryforward is a benefit to the acquired firm's shareholders.

In the event that Active Corp., which has a low P/E ratio, acquires Basic Corp., which has a higher P/E ratio, we could be assured that one of the following would occur, with everything else being equal. Which one would occur?

The elimination of overlapping functions and the meshing of two firms' strong areas or products creates the managerial incentive for mergers known as

Which one of the following types of mergers is most likely to lead to diversification benefits?

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

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

Dilution in earnings per share occurs when a company with

Vertical integration is usually prohibited or severely restricted by government antitrust regulations.

Selling stockholders who are offered cash or another company's stock in a merger may be willing to part with the shares they hold because

It is possible to merge with a company so that the merger results in the same earnings per share but still lowers the new firm's cost of capital.