Question 1

When a firm distributes shares in a subsidiary to its existing stockholders on a pro rata basis,the firm is doing

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 2

As it applies to an acquisition,the term goodwill is defined as the difference between the

Accepted Answer

A) purchase price and the book value of the target firm. 
B) purchase price and the estimated fair market value of the net assets acquired. 
C) fair market value of the net assets acquired and the target firm's equity. 
D) market value and the book value of the target firm. 
E) market value and book value of the target firm's total assets. 
A) purchase price and the book value of the target firm. 
B) purchase price and the estimated fair market value of the net assets acquired. 
C) fair market value of the net assets acquired and the target firm's equity. 
D) market value and the book value of the target firm. 
E) market value and book value of the target firm's total assets.

Question 3

Assume Firm A acquires Firm B.As a result,the EPS of Firm A increase by 10 percent.Given this increase,you know for certain that the

Accepted Answer

A) acquisition created synergy. 
B) purchase price was below market value. 
C) value of B to A exceeded the value of B as a stand-alone firm. 
D) acquisition provided diversification benefits. 
E) total earnings divided by the total shares increased. 
A) acquisition created synergy. 
B) purchase price was below market value. 
C) value of B to A exceeded the value of B as a stand-alone firm. 
D) acquisition provided diversification benefits. 
E) total earnings divided by the total shares increased.

Question 4

Alto's is known for its efficient production and distribution of musical instruments and related products.Tenor's is a well-known brand of musical instruments with a marginal distribution system.Tenor's might appeal to Alto's as an acquisition target due to the potential synergy resulting from

Accepted Answer

A) lower taxes. 
B) strategic benefits. 
C) complementary resources. 
D) marketing gains. 
E) economies of vertical integration. 
A) lower taxes. 
B) strategic benefits. 
C) complementary resources. 
D) marketing gains. 
E) economies of vertical integration.

Question 5

The Glass Works has a market value of $336,000.Creative Pottery has 23,800 shares of stock outstanding at a price per share of $37.Creative Pottery is acquiring The Glass Works in exchange for 9,200 shares of Creative Pottery stock.The merger is expected to create $24,000 of synergy.What is the NPV of the acquisition?

Accepted Answer

A) −$11,407 
B) $24,608 
C) $14,136 
D) $19,600 
E) $5,701 
A) −$11,407 
B) $24,608 
C) $14,136 
D) $19,600 
E) $5,701

Question 6

New Tech has a market value of $452,000.Emerson Electrics has 37,000 shares of stock outstanding at a price per share of $21.Emerson Electrics is acquiring New Tech in exchange for 21,500 shares of Emerson Electrics stock.The merger is expected to create $3,000 of synergy.What is the acquisition net present value?

Accepted Answer

A) −$790 
B) $3,511 
C) $2,503 
D) $2,214 
E) $3,000 
A) −$790 
B) $3,511 
C) $2,503 
D) $2,214 
E) $3,000

Question 7

When a small number of investors acquire all of the equity shares in a firm using borrowed funds,the transaction is best described as a

Accepted Answer

A) proxy contest. 
B) management buyout. 
C) leveraged buyout. 
D) tender offer. 
E) strategic alliance. 
A) proxy contest. 
B) management buyout. 
C) leveraged buyout. 
D) tender offer. 
E) strategic alliance.

Question 8

In a true merger,not a consolidation,the acquirer

Accepted Answer

A) and the target firm become a new firm with a new name. 
B) accepts the responsibility for the debts of the target firm. 
C) ceases to exist as a separate firm. 
D) obtains only the assets of the target firm. 
E) is totally absorbed by the acquired firm. 
A) and the target firm become a new firm with a new name. 
B) accepts the responsibility for the debts of the target firm. 
C) ceases to exist as a separate firm. 
D) obtains only the assets of the target firm. 
E) is totally absorbed by the acquired firm.

Question 9

Synergy is created in an acquisition only if the

Accepted Answer

A) value of the combined firm exceeds the sum of the individual firm's separate values. 
B) acquisition is an all-cash transaction at the current market value of the target firm. 
C) acquisition increases revenues while also reducing cash costs. 
D) acquisition is a tax-free transaction. 
E) value of the shares exchanged equal the market value of the target firm's shares. 
A) value of the combined firm exceeds the sum of the individual firm's separate values. 
B) acquisition is an all-cash transaction at the current market value of the target firm. 
C) acquisition increases revenues while also reducing cash costs. 
D) acquisition is a tax-free transaction. 
E) value of the shares exchanged equal the market value of the target firm's shares.

Question 10

Low's has 17,500 shares of stock outstanding at a price per share of $37.40.Bert's has 25,000 shares outstanding at a price per share of $41.50.Bert's believes it can create $12,800 of synergy if it acquires Low's in an exchange of stock.What is the value of the combined firm following the merger? Assume both firms are all-equity financed.

Accepted Answer

A) $1,704,800 
B) $1,597,500 
C) $1,753,300 
D) $1,692,000 
E) $1,679,200 
A) $1,704,800 
B) $1,597,500 
C) $1,753,300 
D) $1,692,000 
E) $1,679,200

Question 11

Which of these may be a source of synergy? I.Unused debt capacity
II.Economies of scale
III.Increase in overall revenue
IV.Unused net operating losses

Accepted Answer

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

Question 12

Dog Treats has 7,500 shares of stock outstanding at a market price per share of $13.FIDO has 22,000 shares outstanding that sell for $26 a share.By merging,$12,600 of synergy can be created.What would be the postmerger value of the combined firm if FIDO pays $100,000 to acquire Dog Treats?

Accepted Answer

A) $569,500 
B) $582,100 
C) $556,100 
D) $669,500 
E) $682,100 
A) $569,500 
B) $582,100 
C) $556,100 
D) $669,500 
E) $682,100

Question 13

Wilson's has 6,000 shares of stock outstanding at a market price per share of $19.Neilsen's has 22,000 shares outstanding that sell for $33 a share.By merging,$11,000 of synergy can be created.Neilsen's is acquiring Wilson's for $115,005 worth of Neilsen stock.What is the postmerger value per share?

Accepted Answer

A) $33.39 
B) $33.00 
C) $29.97 
D) $29.42 
E) $28.15 
A) $33.39 
B) $33.00 
C) $29.97 
D) $29.42 
E) $28.15

Question 14

A tender offer is often contingent upon the

Accepted Answer

A) approval of the target firm's board of directors. 
B) approval of both the acquirer's and bidder's shareholders during their respective shareholder meetings. 
C) acquisition being friendly in nature. 
D) bidder obtaining its desired percentage of voting shares in the target firm. 
E) approval of the target firm's officers. 
A) approval of the target firm's board of directors. 
B) approval of both the acquirer's and bidder's shareholders during their respective shareholder meetings. 
C) acquisition being friendly in nature. 
D) bidder obtaining its desired percentage of voting shares in the target firm. 
E) approval of the target firm's officers.

Question 15

The Red Hen is acquiring The Chicken Coop for $375,000 cash.The fixed assets of The Chicken Coop have a market value of $315,000,and the net working capital is $38,000.What amount of goodwill,if any,will be recorded on the books of The Red Hen?

Accepted Answer

A) $60,000 
B) $0 
C) $22,000 
D) $3,000 
E) $35,000 
A) $60,000 
B) $0 
C) $22,000 
D) $3,000 
E) $35,000

Question 16

The cost of capital of Firm A is 11.2 percent compared to 14.1 percent for Firm B.The market rate of return is 10.8 percent and the risk-free rate is 4 percent.Firm A is considering the acquisition of Firm B.Should this acquisition occur,it will be financed with debt at an interest cost of 8.7 percent.Which of these rates is most appropriate to use as the discount rate when analyzing the acquisition of Firm B by Firm A?

Accepted Answer

A) 8.7% 
B) 11.2% 
C) 10.8% 
D) 14.1% 
E) 4)0% 
A) 8.7% 
B) 11.2% 
C) 10.8% 
D) 14.1% 
E) 4)0%

Question 17

Al's Market has a market value of $418,900.Liza's has a market value of $724,500.Liza's believes it can create $46,000 of synergy if it acquires Al's for $425,000 in cash.What is the value of the firm following the merger? Assume both firms are all-equity financed.

Accepted Answer

A) $764,400 
B) $1,098,900 
C) $1,189,400 
D) $718,400 
E) $968,900 
A) $764,400 
B) $1,098,900 
C) $1,189,400 
D) $718,400 
E) $968,900

Question 18

Tropical Foods just paid $249,900 cash to acquire Southern Veggies.Prior to the acquisition,Southern Veggies had a firm value of $228,500 and Tropical Foods was valued at $796,000.The acquisition created $11,400 of synergy from cost efficiencies.What is the value of Southern Veggies to Tropical Foods?

Accepted Answer

A) $245,000 
B) $261,300 
C) $232,800 
D) $229,000 
E) $239,900 
A) $245,000 
B) $261,300 
C) $232,800 
D) $229,000 
E) $239,900

Question 19

Share rights plans

Accepted Answer

A) vary in detail but are all designed to increase the cost of the firm to an unfriendly acquirer. 
B) with flip-in provisions allow existing shareholders to purchase additional shares at market value without incurring any transaction costs. 
C) require any unfriendly acquirer to exchange two shares in the target firm for every one share in the merged firm. 
D) allow shareholders to purchase additional shares at below market value at a time chosen by the rights holder. 
E) grant stock dividends to their holders in addition to the normal cash dividends. 
A) vary in detail but are all designed to increase the cost of the firm to an unfriendly acquirer. 
B) with flip-in provisions allow existing shareholders to purchase additional shares at market value without incurring any transaction costs. 
C) require any unfriendly acquirer to exchange two shares in the target firm for every one share in the merged firm. 
D) allow shareholders to purchase additional shares at below market value at a time chosen by the rights holder. 
E) grant stock dividends to their holders in addition to the normal cash dividends.

Question 20

A taxable acquisition

Accepted Answer

A) requires the target firm's shareholders to include the entire value of shares received in their taxable income. 
B) is generally more expensive than a comparable tax-free acquisition. 
C) results from an exchange of stock. 
D) results in a taxable gain for the acquiring firm's shareholders. 
E) is the exchange of shares of equivalent value. 
A) requires the target firm's shareholders to include the entire value of shares received in their taxable income. 
B) is generally more expensive than a comparable tax-free acquisition. 
C) results from an exchange of stock. 
D) results in a taxable gain for the acquiring firm's shareholders. 
E) is the exchange of shares of equivalent value.

When a firm distributes shares in a subsidiary to its existing stockholders on a pro rata basis,the firm is doing

As it applies to an acquisition,the term goodwill is defined as the difference between the

Assume Firm A acquires Firm B.As a result,the EPS of Firm A increase by 10 percent.Given this increase,you know for certain that the

Alto's is known for its efficient production and distribution of musical instruments and related products.Tenor's is a well-known brand of musical instruments with a marginal distribution system.Tenor's might appeal to Alto's as an acquisition target due to the potential synergy resulting from

When a small number of investors acquire all of the equity shares in a firm using borrowed funds,the transaction is best described as a

In a true merger,not a consolidation,the acquirer

Synergy is created in an acquisition only if the

Which of these may be a source of synergy? I.Unused debt capacity II.Economies of scale III.Increase in overall revenue IV.Unused net operating losses

Dog Treats has 7,500 shares of stock outstanding at a market price per share of $13.FIDO has 22,000 shares outstanding that sell for $26 a share.By merging,$12,600 of synergy can be created.What would be the postmerger value of the combined firm if FIDO pays $100,000 to acquire Dog Treats?

Wilson's has 6,000 shares of stock outstanding at a market price per share of $19.Neilsen's has 22,000 shares outstanding that sell for $33 a share.By merging,$11,000 of synergy can be created.Neilsen's is acquiring Wilson's for $115,005 worth of Neilsen stock.What is the postmerger value per share?

A tender offer is often contingent upon the

The Red Hen is acquiring The Chicken Coop for $375,000 cash.The fixed assets of The Chicken Coop have a market value of $315,000,and the net working capital is $38,000.What amount of goodwill,if any,will be recorded on the books of The Red Hen?

Al's Market has a market value of $418,900.Liza's has a market value of $724,500.Liza's believes it can create $46,000 of synergy if it acquires Al's for $425,000 in cash.What is the value of the firm following the merger? Assume both firms are all-equity financed.

Share rights plans

A taxable acquisition

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

When a firm distributes shares in a subsidiary to its existing stockholders on a pro rata basis,the firm is doing

As it applies to an acquisition,the term goodwill is defined as the difference between the

Assume Firm A acquires Firm B.As a result,the EPS of Firm A increase by 10 percent.Given this increase,you know for certain that the

Alto's is known for its efficient production and distribution of musical instruments and related products.Tenor's is a well-known brand of musical instruments with a marginal distribution system.Tenor's might appeal to Alto's as an acquisition target due to the potential synergy resulting from

When a small number of investors acquire all of the equity shares in a firm using borrowed funds,the transaction is best described as a

In a true merger,not a consolidation,the acquirer

Synergy is created in an acquisition only if the

Which of these may be a source of synergy? I.Unused debt capacity II.Economies of scale III.Increase in overall revenue IV.Unused net operating losses

Dog Treats has 7,500 shares of stock outstanding at a market price per share of $13.FIDO has 22,000 shares outstanding that sell for $26 a share.By merging,$12,600 of synergy can be created.What would be the postmerger value of the combined firm if FIDO pays $100,000 to acquire Dog Treats?

A tender offer is often contingent upon the

The Red Hen is acquiring The Chicken Coop for $375,000 cash.The fixed assets of The Chicken Coop have a market value of $315,000,and the net working capital is $38,000.What amount of goodwill,if any,will be recorded on the books of The Red Hen?

Al's Market has a market value of $418,900.Liza's has a market value of $724,500.Liza's believes it can create $46,000 of synergy if it acquires Al's for $425,000 in cash.What is the value of the firm following the merger? Assume both firms are all-equity financed.

Share rights plans

A taxable acquisition

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