Question 1

On average,shareholders of

Accepted Answer

A) the target firm benefit from mergers. 
B) the target firm benefit from cash mergers and incur losses in stock mergers. 
C) the acquiring firm benefit the most from a merger. 
D) the target firm suffer losses when a merger occurs. 
E) both the acquiring and target firms incur losses when firms merge. 
A) the target firm benefit from mergers. 
B) the target firm benefit from cash mergers and incur losses in stock mergers. 
C) the acquiring firm benefit the most from a merger. 
D) the target firm suffer losses when a merger occurs. 
E) both the acquiring and target firms incur losses when firms merge. A

Question 2

LTL has 9,000 shares of stock outstanding at a market price per share of $21.STS has 45,000 shares outstanding that sell for $39 a share.By merging,$15,200 of synergy can be created.What would be the postmerger value of the combined firm if STS acquires LTL in a stock acquisition valued at $200,000?

Accepted Answer

A) $1,744,000 
B) $1,759,200 
C) $1,944,000 
D) $1,766,500 
E) $1,959,200 
A) $1,744,000 
B) $1,759,200 
C) $1,944,000 
D) $1,766,500 
E) $1,959,200 E

Question 3

Firm A has a market value of $318,000 while Firm B's market value is $69,000.Firm A just acquired Firm B for $75,000 cash.What is the net present value of the acquisition if the merger creates $15,500 of synergy?

Accepted Answer

A) $7,000 
B) $4,500 
C) −$6,000 
D) $9,500 
E) −$13,000 
A) $7,000 
B) $4,500 
C) −$6,000 
D) $9,500 
E) −$13,000 D

Question 4

Which one of these should be the primary appeal of unused debt capacity to a bidder firm?

Accepted Answer

A) Ability to borrow additional funds to increase management bonuses 
B) Source of funding for negative net present value projects 
C) Increased funding for the payment of unsustainable dividends 
D) Tax savings resulting from increased interest expense on additional debt 
E) Debt funding for a golden parachute 
A) Ability to borrow additional funds to increase management bonuses 
B) Source of funding for negative net present value projects 
C) Increased funding for the payment of unsustainable dividends 
D) Tax savings resulting from increased interest expense on additional debt 
E) Debt funding for a golden parachute

Question 5

Rizzo's is a new,well-financed manufacturing firm with high fixed costs.The firm has a strong demand,efficient operations and distribution systems,and low taxes.Rizzo's is most apt to acquire a target firm that will provide

Accepted Answer

A) vertical integration. 
B) economies of scale. 
C) unused debt capacity. 
D) marketing gains. 
E) net operating losses. 
A) vertical integration. 
B) economies of scale. 
C) unused debt capacity. 
D) marketing gains. 
E) net operating losses.

Question 6

Racing Motors has a market value of $187,000.PJ Racing has 22,500 shares of stock outstanding at a price per share of $43.PJ Racing is acquiring Racing Motors in an exchange for 4,350 shares of PJ Racing stock.The merger is expected to create $21,000 of synergy.The postmerger value of the firm will be ________ and the postmerger price per share will be ________.

Accepted Answer

A) $1,215,000;$43.78 
B) $1,865,500;$44.06 
C) $1,240,000;$42.89 
D) $1,040,000;$44.06 
E) $1,175,500;$43.78 
A) $1,215,000;$43.78 
B) $1,865,500;$44.06 
C) $1,240,000;$42.89 
D) $1,040,000;$44.06 
E) $1,175,500;$43.78

Question 7

Which one of these defines the maximum price that a bidder should pay for a target firm?

Accepted Answer

A) An amount equal to the premium created by a merger of the bidder and target firms 
B) Target firm's market value less the value of its long-term debt 
C) Target firm's total market value as a stand-alone entity 
D) Summation of the target firm's market value plus the merger premium minus any long-term debt 
E) Summation of the target firm's market value plus the value of the synergy created by the merger 
A) An amount equal to the premium created by a merger of the bidder and target firms 
B) Target firm's market value less the value of its long-term debt 
C) Target firm's total market value as a stand-alone entity 
D) Summation of the target firm's market value plus the merger premium minus any long-term debt 
E) Summation of the target firm's market value plus the value of the synergy created by the merger

Question 8

Which two of these are required for an acquisition to be considered tax-free? I.The bidder must purchase the target firm for less than its current market value.
II.The acquisition must have a business purpose other than the avoidance of taxes.
III.The stockholders in the target firm must retain an equity interest in the bidder.
IV.The acquisition must be a lump sum cash transaction.

Accepted Answer

A) I and II only 
B) III and IV only 
C) II and III only 
D) I and III only 
E) II and IV only 
A) I and II only 
B) III and IV only 
C) II and III only 
D) I and III only 
E) II and IV only

Question 9

ABC created a new company,XYZ,from its subsidiary unit and maintained ownership of all of the shares in XYZ.When ABC felt market conditions were favorable,it did an IPO and sold 25 percent of its shares in XYZ.ABC has effectively completed

Accepted Answer

A) a reversal. 
B) a divestiture. 
C) an equity carve-out. 
D) a spin-off. 
E) a split-up. 
A) a reversal. 
B) a divestiture. 
C) an equity carve-out. 
D) a spin-off. 
E) a split-up.

Question 10

Which one of these statements is true?

Accepted Answer

A) The NPV of a merger can only be shared with the target firm's shareholders if the merger is financed with cash. 
B) A cash acquisition affects the control of a bidder firm. 
C) An acquisition financed with shares of stock is generally a tax-free transaction for all involved shareholders. 
D) A cash acquisition causes the shareholders of the target firm to share in any merger losses. 
E) A cash acquisition is less expensive than a stock acquisition to the shareholders of the acquiring firm when a merger produces a negative NPV. 
A) The NPV of a merger can only be shared with the target firm's shareholders if the merger is financed with cash. 
B) A cash acquisition affects the control of a bidder firm. 
C) An acquisition financed with shares of stock is generally a tax-free transaction for all involved shareholders. 
D) A cash acquisition causes the shareholders of the target firm to share in any merger losses. 
E) A cash acquisition is less expensive than a stock acquisition to the shareholders of the acquiring firm when a merger produces a negative NPV.

Question 11

Studies have shown that acquiring firm shareholders tend to realize minimal gains,if any,due to

Accepted Answer

A) the target firm and acquiring firm being too similar in size. 
B) the target firm's being acquired for less than their true value. 
C) merger gains being underestimated. 
D) overinflated synergy estimates. 
E) negative purchase premiums. 
A) the target firm and acquiring firm being too similar in size. 
B) the target firm's being acquired for less than their true value. 
C) merger gains being underestimated. 
D) overinflated synergy estimates. 
E) negative purchase premiums.

Question 12

Global Network has a market value of $713,000.AG Communications has 46,700 shares of stock outstanding at a price per share of $56.AG is acquiring Global in an exchange for 13,500 shares of AG stock.The merger is expected to create $28,000 of synergy.What will be the postmerger value of the firm?

Accepted Answer

A) $3,218,100 
B) $3,482,800 
C) $3,356,200 
D) $3,220,000 
E) $3,298,000 
A) $3,218,100 
B) $3,482,800 
C) $3,356,200 
D) $3,220,000 
E) $3,298,000

Question 13

If the acquirer wants the target firm's managers to stay in place,at least for a stated period of time,the acquirer should employ the tactic known as a

Accepted Answer

A) golden parachute. 
B) crown jewel. 
C) golden handcuff. 
D) captured knight. 
E) white knight. 
A) golden parachute. 
B) crown jewel. 
C) golden handcuff. 
D) captured knight. 
E) white knight.

Question 14

Western Farms just paid $185,000 cash to acquire Northern Foods.Prior to the acquisition Western Farms had 12,000 shares of stock outstanding at a price per share of $17.Northern Foods had 7,500 shares outstanding at a price per share of $23.The acquisition created $4,500 of synergy.What is the value of Northern Foods to Western Farms?

Accepted Answer

A) $185,000 
B) $181,500 
C) $229,500 
D) $220,500 
E) $177,000 
A) $185,000 
B) $181,500 
C) $229,500 
D) $220,500 
E) $177,000

Question 15

JLM has 7,400 shares of stock outstanding at a market price per share of $18.Hi-Tek has 36,000 shares outstanding that sell for $45 a share.By merging,$5,000 of synergy can be created.Hi-Tek is acquiring JLM for $135,000 worth of Hi-Tek stock.What is the postmerger value per share?

Accepted Answer

A) $45.00 
B) $46.57 
C) $45.08 
D) $44.92 
E) $44.83 
A) $45.00 
B) $46.57 
C) $45.08 
D) $44.92 
E) $44.83

Question 16

The purchase ________ best fits the definition of a vertical acquisition.

Accepted Answer

A) of a men's clothing store by a women's clothing company 
B) of a vacation resort by a steel manufacturer 
C) of a coal mine by an electric utility company 
D) by a restaurant of its main competitor 
E) of an airline by a major retail chain 
A) of a men's clothing store by a women's clothing company 
B) of a vacation resort by a steel manufacturer 
C) of a coal mine by an electric utility company 
D) by a restaurant of its main competitor 
E) of an airline by a major retail chain

Question 17

The sale of all,or any part of,Firm A's assets to Firm B is referred to as

Accepted Answer

A) a reversal. 
B) a divestiture. 
C) an equity carve-out. 
D) a spin-off. 
E) a split-up. 
A) a reversal. 
B) a divestiture. 
C) an equity carve-out. 
D) a spin-off. 
E) a split-up.

Question 18

Which one of these statements is correct?

Accepted Answer

A) The titles to the target firm's individual assets must be transferred to the acquirer in a merger. 
B) If a target firm's managers oppose an acquisition,the acquisition cannot occur. 
C) The acquisition of a target firm's assets can be done without the approval of the target firm's shareholders. 
D) A tender offer must be accepted by all of the target firm's shareholders to be effective. 
E) An acquisition of stock in a target firm may later be followed with a formal merger. 
A) The titles to the target firm's individual assets must be transferred to the acquirer in a merger. 
B) If a target firm's managers oppose an acquisition,the acquisition cannot occur. 
C) The acquisition of a target firm's assets can be done without the approval of the target firm's shareholders. 
D) A tender offer must be accepted by all of the target firm's shareholders to be effective. 
E) An acquisition of stock in a target firm may later be followed with a formal merger.

Question 19

Under the purchase accounting method,

Accepted Answer

A) goodwill must be amortized straight-line over the target firm's estimated life. 
B) acquired assets are recorded based on their target firms' book values. 
C) goodwill always remains on the acquirer's books at its original value. 
D) goodwill will generally be a long-term liability on the acquirer's books. 
E) acquired assets are recorded at fair market value. 
A) goodwill must be amortized straight-line over the target firm's estimated life. 
B) acquired assets are recorded based on their target firms' book values. 
C) goodwill always remains on the acquirer's books at its original value. 
D) goodwill will generally be a long-term liability on the acquirer's books. 
E) acquired assets are recorded at fair market value.

Question 20

The value of Firm B to Firm A is equal to:

Accepted Answer

A) VAB + ΔV. 
B) VAB − VB + ΔV. 
C) VB + ΔV. 
D) VAB − ΔV. 
E) VA + VB + ΔV. 
A) VAB + ΔV. 
B) VAB − VB + ΔV. 
C) VB + ΔV. 
D) VAB − ΔV. 
E) VA + VB + ΔV.

On average,shareholders of

LTL has 9,000 shares of stock outstanding at a market price per share of $21.STS has 45,000 shares outstanding that sell for $39 a share.By merging,$15,200 of synergy can be created.What would be the postmerger value of the combined firm if STS acquires LTL in a stock acquisition valued at $200,000?

Firm A has a market value of $318,000 while Firm B's market value is $69,000.Firm A just acquired Firm B for $75,000 cash.What is the net present value of the acquisition if the merger creates $15,500 of synergy?

Which one of these should be the primary appeal of unused debt capacity to a bidder firm?

Rizzo's is a new,well-financed manufacturing firm with high fixed costs.The firm has a strong demand,efficient operations and distribution systems,and low taxes.Rizzo's is most apt to acquire a target firm that will provide

Which one of these defines the maximum price that a bidder should pay for a target firm?

ABC created a new company,XYZ,from its subsidiary unit and maintained ownership of all of the shares in XYZ.When ABC felt market conditions were favorable,it did an IPO and sold 25 percent of its shares in XYZ.ABC has effectively completed

Which one of these statements is true?

Studies have shown that acquiring firm shareholders tend to realize minimal gains,if any,due to

Global Network has a market value of $713,000.AG Communications has 46,700 shares of stock outstanding at a price per share of $56.AG is acquiring Global in an exchange for 13,500 shares of AG stock.The merger is expected to create $28,000 of synergy.What will be the postmerger value of the firm?

If the acquirer wants the target firm's managers to stay in place,at least for a stated period of time,the acquirer should employ the tactic known as a

JLM has 7,400 shares of stock outstanding at a market price per share of $18.Hi-Tek has 36,000 shares outstanding that sell for $45 a share.By merging,$5,000 of synergy can be created.Hi-Tek is acquiring JLM for $135,000 worth of Hi-Tek stock.What is the postmerger value per share?

The purchase ________ best fits the definition of a vertical acquisition.

The sale of all,or any part of,Firm A's assets to Firm B is referred to as

Which one of these statements is correct?

Under the purchase accounting method,

The value of Firm B to Firm A is equal to:

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

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Exam 21: Mergers Amcq Acquisitions Web Only

On average,shareholders of

Firm A has a market value of $318,000 while Firm B's market value is $69,000.Firm A just acquired Firm B for $75,000 cash.What is the net present value of the acquisition if the merger creates $15,500 of synergy?

Which one of these should be the primary appeal of unused debt capacity to a bidder firm?

Rizzo's is a new,well-financed manufacturing firm with high fixed costs.The firm has a strong demand,efficient operations and distribution systems,and low taxes.Rizzo's is most apt to acquire a target firm that will provide

Which one of these defines the maximum price that a bidder should pay for a target firm?

ABC created a new company,XYZ,from its subsidiary unit and maintained ownership of all of the shares in XYZ.When ABC felt market conditions were favorable,it did an IPO and sold 25 percent of its shares in XYZ.ABC has effectively completed

Which one of these statements is true?

Studies have shown that acquiring firm shareholders tend to realize minimal gains,if any,due to

Global Network has a market value of $713,000.AG Communications has 46,700 shares of stock outstanding at a price per share of $56.AG is acquiring Global in an exchange for 13,500 shares of AG stock.The merger is expected to create $28,000 of synergy.What will be the postmerger value of the firm?

If the acquirer wants the target firm's managers to stay in place,at least for a stated period of time,the acquirer should employ the tactic known as a

JLM has 7,400 shares of stock outstanding at a market price per share of $18.Hi-Tek has 36,000 shares outstanding that sell for $45 a share.By merging,$5,000 of synergy can be created.Hi-Tek is acquiring JLM for $135,000 worth of Hi-Tek stock.What is the postmerger value per share?

The purchase ________ best fits the definition of a vertical acquisition.

The sale of all,or any part of,Firm A's assets to Firm B is referred to as

Which one of these statements is correct?

Under the purchase accounting method,

The value of Firm B to Firm A is equal to:

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Discounted Cash Flow Valuation

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Filters