Question 1

The free-cash-flow theory of takeovers predicts that:

Accepted Answer

A) Firms without free cash flow will become the most common LBOs 
B) Firms with free cash flow will continue to be the acquirers 
C) Firms with excess cash do not have a tendency to use it wisely 
D) The riskiest takeover candidates are those with large amounts of free cash flow 
A) Firms without free cash flow will become the most common LBOs 
B) Firms with free cash flow will continue to be the acquirers 
C) Firms with excess cash do not have a tendency to use it wisely 
D) The riskiest takeover candidates are those with large amounts of free cash flow C

Question 2

When two firms merge, the value of the acquiring firm will change by the:

Accepted Answer

A) Ggain from the merger 
B) NPV minus the cost of the merger 
C) NPV of the merger 
D) Cost of the merger 
A) Ggain from the merger 
B) NPV minus the cost of the merger 
C) NPV of the merger 
D) Cost of the merger C

Question 3

An economic gain is derived from mergers when two firms are worth more combined than separate.

Accepted Answer

A) True 
 B)False  True

Question 4

Conglomerate mergers involve companies in:

Accepted Answer

A) Similar lines of business 
B) Different stages of the corporate lifecycle 
C) Unrelated lines of business 
D) Different countries 
A) Similar lines of business 
B) Different stages of the corporate lifecycle 
C) Unrelated lines of business 
D) Different countries

Question 5

A firm seeking a friendly acquirer to avoid a hostile takeover is in need of a:

Accepted Answer

A) Bootstrap 
B) White knight 
C) Poison pill 
D) Greenmail attempt 
A) Bootstrap 
B) White knight 
C) Poison pill 
D) Greenmail attempt

Question 6

The cost of a merger equals the:

Accepted Answer

A) Cash paid for the target firm 
B) Increase in total earnings less the price paid 
C) Premium paid over the target's value as a separate entity 
D) Sum of cash and stock paid for the target firm 
A) Cash paid for the target firm 
B) Increase in total earnings less the price paid 
C) Premium paid over the target's value as a separate entity 
D) Sum of cash and stock paid for the target firm

Question 7

Describe the basic differences between mergers, leveraged buyouts, management buyouts, divestitures, and spin-offs.

Accepted Answer

A merger occurs when an acquiring compan

Question 8

Proxy fights are conducted in order to achieve a goal of:

Accepted Answer

A) Changing the corporate charter 
B) Bringing about economies of scale 
C) Replacing the current board and management team 
D) Having a public tender offer 
A) Changing the corporate charter 
B) Bringing about economies of scale 
C) Replacing the current board and management team 
D) Having a public tender offer

Question 9

Which of the following is correct concerning a spin-off?

Accepted Answer

A) A division of a firm is reconstituted as a new firm 
B) An unprofitable division is divested 
C) A division of a firm is bought by its managers 
D) The spin-off generates no free cash flow 
A) A division of a firm is reconstituted as a new firm 
B) An unprofitable division is divested 
C) A division of a firm is bought by its managers 
D) The spin-off generates no free cash flow

Question 10

In a merger the acquiring firm buys only the assets of the target firm.

Accepted Answer

A) True 
 B)False

Question 11

Agency cost occurs when managers or directors take actions adverse to shareholders' interest.

Accepted Answer

A) True 
 B)False

Question 12

Economies of vertical integration are one possible source of synergy in mergers.

Accepted Answer

A) True 
 B)False

Question 13

Tender offers generally require the approval of the target firm's management.

Accepted Answer

A) True 
 B)False

Question 14

Changes in corporate charter designed to deter an unwelcome takeover is best defined as:

Accepted Answer

A) Leveraged Buyout 
B) Poison Pill 
C) Shark Repellent 
D) Proxy Contest 
A) Leveraged Buyout 
B) Poison Pill 
C) Shark Repellent 
D) Proxy Contest

Question 15

What are some of the motivations for leveraged buyouts?

Accepted Answer

In a leveraged buyout or management buyo

Question 16

The market for corporate control suggests that:

Accepted Answer

A) Management and ownership make a large difference in a firm's results 
B) It is rare for mergers to show economic benefits over a sustained period 
C) Hostile takeovers generate the most in additional value 
D) LBOs cost more than they are worth 
A) Management and ownership make a large difference in a firm's results 
B) It is rare for mergers to show economic benefits over a sustained period 
C) Hostile takeovers generate the most in additional value 
D) LBOs cost more than they are worth

Question 17

The major cost of a merger is:

Accepted Answer

A) The legal fees 
B) The cost of restructuring the acquired firm 
C) The premium the acquirer pays to the target firm 
D) The reduction in free cash flow 
A) The legal fees 
B) The cost of restructuring the acquired firm 
C) The premium the acquirer pays to the target firm 
D) The reduction in free cash flow

Question 18

Which of the following might you recommend to a firm with excessive free cash flow?

Accepted Answer

A) Acquire a firm to diversify 
B) Acquire a firm to bootstrap earnings 
C) A leveraged buyout 
D) A repurchase of shares 
A) Acquire a firm to diversify 
B) Acquire a firm to bootstrap earnings 
C) A leveraged buyout 
D) A repurchase of shares

Question 19

Which of the following is not a category of mergers?

Accepted Answer

A) Horizontal 
B) Vertical 
C) Conglomerate 
D) Diagonal 
A) Horizontal 
B) Vertical 
C) Conglomerate 
D) Diagonal

Question 20

When a firm's management takes the firm private with the aid of substantial debt it is known as a(n):

Accepted Answer

A) Tender offer 
B) Greenmail offer 
C) MBO 
D) Hostile takeover 
A) Tender offer 
B) Greenmail offer 
C) MBO 
D) Hostile takeover

Exam 23: Options

The free-cash-flow theory of takeovers predicts that:

When two firms merge, the value of the acquiring firm will change by the:

An economic gain is derived from mergers when two firms are worth more combined than separate.

Conglomerate mergers involve companies in:

A firm seeking a friendly acquirer to avoid a hostile takeover is in need of a:

The cost of a merger equals the:

Describe the basic differences between mergers, leveraged buyouts, management buyouts, divestitures, and spin-offs.

Proxy fights are conducted in order to achieve a goal of:

Which of the following is correct concerning a spin-off?

In a merger the acquiring firm buys only the assets of the target firm.

Agency cost occurs when managers or directors take actions adverse to shareholders' interest.

Economies of vertical integration are one possible source of synergy in mergers.

Tender offers generally require the approval of the target firm's management.

Changes in corporate charter designed to deter an unwelcome takeover is best defined as:

What are some of the motivations for leveraged buyouts?

The market for corporate control suggests that:

The major cost of a merger is:

Which of the following might you recommend to a firm with excessive free cash flow?

Which of the following is not a category of mergers?

When a firm's management takes the firm private with the aid of substantial debt it is known as a(n):

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Risk Management

Conclusion

What We Do and Do Not Know About Finance

Filters