Question 1

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. B

Question 2

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. E

Question 3

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 C

Question 4

Firm B has the option to purchase the key assets of Firm A at a predetermined fixed price should Firm A become the target in an unfriendly takeover attempt.Which term applies to the option given to Firm B?

Accepted Answer

A) Countertender offer 
B) Fair price provision 
C) Dual class capitalization 
D) Bear hug 
E) Lockup 
A) Countertender offer 
B) Fair price provision 
C) Dual class capitalization 
D) Bear hug 
E) Lockup

Question 5

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 6

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 7

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 8

Bakers Mart just acquired Liver Works in a stock transaction.The combined firm has a postmerger value of $174,900.As independent firms,Bakers Mart was worth $106,800 and Liver Works was worth $61,100.How much synergy was created by the merger?

Accepted Answer

A) $8,700 
B) $7,500 
C) $7,000 
D) $2,500 
E) $0 
A) $8,700 
B) $7,500 
C) $7,000 
D) $2,500 
E) $0

Question 9

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 10

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.

Question 11

The Green Fiddle has $48,000 of goodwill on its books as the result of the acquisition of The Blue Café.The acquisition has an estimated useful life of 25 years.If the acquisition were to be made today,the goodwill would be about $5,000 more than it was originally.What is the amount of goodwill amortization that needs to be deducted this year?

Accepted Answer

A) $0 
B) $1,920 
C) −$5,000 
D) $5,000 
E) $200 
A) $0 
B) $1,920 
C) −$5,000 
D) $5,000 
E) $200

Question 12

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 13

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 14

Does diversification achieved through a merger create value? Why or why not?

Accepted Answer

A) Yes,diversification lowers the volatility of a firm's earnings which,increases the firm's value to shareholders. 
B) Yes,diversification lowers the total risk of a firm which,provides a compensable benefit. 
C) Yes,diversification increases a firm's earnings which,creates value for the firm. 
D) No,diversification lowers unsystematic risk but has no real value to shareholders. 
E) No,diversification lowers a firm's earnings and thus destroys value. 
A) Yes,diversification lowers the volatility of a firm's earnings which,increases the firm's value to shareholders. 
B) Yes,diversification lowers the total risk of a firm which,provides a compensable benefit. 
C) Yes,diversification increases a firm's earnings which,creates value for the firm. 
D) No,diversification lowers unsystematic risk but has no real value to shareholders. 
E) No,diversification lowers a firm's earnings and thus destroys value.

Question 15

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 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

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 18

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 19

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 20

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

In a true merger,not a consolidation,the acquirer

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

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?

Firm B has the option to purchase the key assets of Firm A at a predetermined fixed price should Firm A become the target in an unfriendly takeover attempt.Which term applies to the option given to Firm B?

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

Synergy is created in an acquisition only if the

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?

Bakers Mart just acquired Liver Works in a stock transaction.The combined firm has a postmerger value of $174,900.As independent firms,Bakers Mart was worth $106,800 and Liver Works was worth $61,100.How much synergy was created by the merger?

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

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

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?

Does diversification achieved through a merger create value? Why or why not?

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

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

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?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

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Exam 21: Mergers and Acquisitions Web Only

In a true merger,not a consolidation,the acquirer

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

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?

Firm B has the option to purchase the key assets of Firm A at a predetermined fixed price should Firm A become the target in an unfriendly takeover attempt.Which term applies to the option given to Firm B?

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

Synergy is created in an acquisition only if the

Bakers Mart just acquired Liver Works in a stock transaction.The combined firm has a postmerger value of $174,900.As independent firms,Bakers Mart was worth $106,800 and Liver Works was worth $61,100.How much synergy was created by the merger?

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

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

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?

Does diversification achieved through a merger create value? Why or why not?

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

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

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?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

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