Question 1

Under the Financial Accounting Standards Board's SFAS 141 and 142, which of the following occurred?

Accepted Answer

A) Goodwill is now amortized. 
B) At least four times per year, goodwill must be tested to determine if it is impaired. 
C) It allowed a one-time write-down of all past goodwill impairment. 
D) It created pooling of interests accounting. 
A) Goodwill is now amortized. 
B) At least four times per year, goodwill must be tested to determine if it is impaired. 
C) It allowed a one-time write-down of all past goodwill impairment. 
D) It created pooling of interests accounting.

Question 2

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 3

The direct financial motives for merger activity include all of the following except for which one?

Accepted Answer

A) The portfolio effect 
B) An improved financial posture and greater debt 
C) The utilization of tax loss carryforwards 
D) Vertical integration 
A) The portfolio effect 
B) An improved financial posture and greater debt 
C) The utilization of tax loss carryforwards 
D) Vertical integration

Question 4

The "two-step buyout" procedure allows the acquiring firm to pay a lower total price than if a single offer is made.

Accepted Answer

A) True 
 B)False

Question 5

A tax loss carryforward of $1,000,000 for company ZZZ is not usually worth $1,000,000 in present value to a firm that might acquire company ZZZ.

Accepted Answer

A) True 
 B)False

Question 6

Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

Accepted Answer

A) True 
 B)False

Question 7

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. Prada Corp. stock is selling for $25. How many shares of Prada Corp. stock would have to be exchanged to acquire all of Stone's stock?

Accepted Answer

A) 266,667 
B) 600,000 
C) 900,000 
D) None of these options 
A) 266,667 
B) 600,000 
C) 900,000 
D) None of these options

Question 8

One of the reasons that companies merge with other companies is to secure access to a competing industry.

Accepted Answer

A) True 
 B)False

Question 9

Most mergers are horizontal in nature in order to avoid the potential antitrust complications involved with the elimination of competition.

Accepted Answer

A) True 
 B)False

Question 10

An example of a horizontal merger would be

Accepted Answer

A) Pepsi and Sears. 
B) McDonald's and Pillsbury. 
C) Pepsi and Frito Lay. 
D) Coca-Cola and Dr Pepper. 
A) Pepsi and Sears. 
B) McDonald's and Pillsbury. 
C) Pepsi and Frito Lay. 
D) Coca-Cola and Dr Pepper.

Question 11

The existing management of a firm is almost always ready to accept an offer for the purchase of the firm at a price above the market price.

Accepted Answer

A) True 
 B)False

Question 12

Antitrust policy can preclude the acquisition of a competitor.

Accepted Answer

A) True 
 B)False

Question 13

By using cash instead of stock, a company may diminish the perceived dilutive effects of a merger.

Accepted Answer

A) True 
 B)False

Question 14

Under a two-step buyout procedure

Accepted Answer

A) shareholders receive a higher total price than if a single offer is made. 
B) the second offer is at a higher price per share. 
C) shareholders are encouraged to react quickly to the offer. 
D) Two of the options are correct. 
A) shareholders receive a higher total price than if a single offer is made. 
B) the second offer is at a higher price per share. 
C) shareholders are encouraged to react quickly to the offer. 
D) Two of the options are correct.

Question 15

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

Accepted Answer

A) True 
 B)False

Question 16

Leveraged buyouts are restricted to "outside" tender offers.

Accepted Answer

A) True 
 B)False

Question 17

Although corporate managers have a responsibility to act in the shareholders' best interest, management frequently opposes acquisitions due to personal motives.

Accepted Answer

A) True 
 B)False

Question 18

A motive for selling stockholders may be the bias against smaller companies.

Accepted Answer

A) True 
 B)False

Question 19

Multinational mergers provide economic and political diversification, which can lead to a higher cost of capital for the new firm.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Under the Financial Accounting Standards Board's SFAS 141 and 142, which of the following occurred?

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.

The direct financial motives for merger activity include all of the following except for which one?

The "two-step buyout" procedure allows the acquiring firm to pay a lower total price than if a single offer is made.

A tax loss carryforward of $1,000,000 for company ZZZ is not usually worth $1,000,000 in present value to a firm that might acquire company ZZZ.

Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

One of the reasons that companies merge with other companies is to secure access to a competing industry.

Most mergers are horizontal in nature in order to avoid the potential antitrust complications involved with the elimination of competition.

An example of a horizontal merger would be

The existing management of a firm is almost always ready to accept an offer for the purchase of the firm at a price above the market price.

Antitrust policy can preclude the acquisition of a competitor.

By using cash instead of stock, a company may diminish the perceived dilutive effects of a merger.

Under a two-step buyout procedure

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

Leveraged buyouts are restricted to "outside" tender offers.

Although corporate managers have a responsibility to act in the shareholders' best interest, management frequently opposes acquisitions due to personal motives.

A motive for selling stockholders may be the bias against smaller companies.

Multinational mergers provide economic and political diversification, which can lead to a higher cost of capital for the new firm.

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

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: Public and Private Placement

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

Under the Financial Accounting Standards Board's SFAS 141 and 142, which of the following occurred?

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.

The direct financial motives for merger activity include all of the following except for which one?

The "two-step buyout" procedure allows the acquiring firm to pay a lower total price than if a single offer is made.

A tax loss carryforward of $1,000,000 for company ZZZ is not usually worth $1,000,000 in present value to a firm that might acquire company ZZZ.

Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

One of the reasons that companies merge with other companies is to secure access to a competing industry.

Most mergers are horizontal in nature in order to avoid the potential antitrust complications involved with the elimination of competition.

An example of a horizontal merger would be

The existing management of a firm is almost always ready to accept an offer for the purchase of the firm at a price above the market price.

Antitrust policy can preclude the acquisition of a competitor.

By using cash instead of stock, a company may diminish the perceived dilutive effects of a merger.

Under a two-step buyout procedure

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

Leveraged buyouts are restricted to "outside" tender offers.

Although corporate managers have a responsibility to act in the shareholders' best interest, management frequently opposes acquisitions due to personal motives.

A motive for selling stockholders may be the bias against smaller companies.

Multinational mergers provide economic and political diversification, which can lead to a higher cost of capital for the new firm.

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

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: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

International Financial Management

Filters