Question 1

In a merger,the short-term and long-term effect on EPS varies according to the relative P/E ratios and the differential future growth rates of the two firms.

Accepted Answer

A) True 
 B)False  True

Question 2

$$\begin{array} { l r r } 
&\underline{ \text { Company A }} &\underline{ \text { Company B }} \
\text { Total earnings } & \$ 2,000,000 & \$ 1,000,000 \
\text { Number of shares outstanding }  & 400,000 & 100,000 \
\text { Earnings per share } & \$ 5.00 & \$ 10.00 \
\text { Price/earnings } & 6 \mathrm { X } & 3 \mathrm { X } \
\text { Market price/share } & 30.00 & \$ 30.00
\end{array}$$
-Which of the following would be true concerning the EPS of Company A.in 5 years? Company A's EPS would be:

Accepted Answer

A)  higher due to the merger. 
B)  the same with or without the merger. 
C)  lower without the merger. 
D)  lower with the merger. 
A)  higher due to the merger. 
B)  the same with or without the merger. 
C)  lower without the merger. 
D)  lower with the merger. D

Question 3

When negotiating a merger offer,management and shareholders may disagree on whether a bid should be accepted.

Accepted Answer

A) True 
 B)False  True

Question 4

List and describe financial motives for mergers.

Accepted Answer

1. Portfolio Effect: A merger allows the

Question 5

In a horizontal merger,the integration that occurs comes from acquiring companies that supply resources to the company's production process.

Accepted Answer

A) True 
 B)False

Question 6

If the acquiring firm's P/E ratio is greater than the P/E of the acquired firm,the surviving firm will automatically get an increase in EPS.

Accepted Answer

A) True 
 B)False

Question 7

List and describe nonfinancial motives for mergers.

Accepted Answer

1. Management Desires: Companies that ar

Question 8

Which of the following is not a financial motive but rather an operating motive for merger and consolidation?

Accepted Answer

A)  The portfolio diversification effect. 
B)  Tax-loss carry-forward. 
C)  Greater financing capability. 
D)  Desire for greater size. 
A)  The portfolio diversification effect. 
B)  Tax-loss carry-forward. 
C)  Greater financing capability. 
D)  Desire for greater size.

Question 9

When one company offers a large premium for another company,most of the upward movement in share price occurs after the public announcement of the merger offer and thus offers the best opportunity for profit to small investors.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Simon Manufacturing Co.is planning to acquire Garfunkel Engineering in a cash plus stock buyout.Garfunkel has 2,000,000 shares of common stock currently outstanding,and the market price is currently at $25 per share.The buyout would offer to purchase Garfunkel Engineering common stock for $19.50 per share,plus a newly issued share of Simon Manufacturing convertible preferred stock,valued at $13.75 per share.
Simon Manufacturing's investment dealer has suggested,as an alternative,a single-stage buyout at $32.50 per share for all of Garfunkel's common stock.
A)What is the total cost of the cash plus stock buyout?
B)What is the total cost of the cash only proposal?
C)If it wants to minimize the total cost of the acquisition,what should Simon Manufacturing do?

Accepted Answer

A)Total cost of cash plus stock buyout @#IMG-DLM&

Question 12

Selling shareholders may receive a price well above current market value.

Accepted Answer

A) True 
 B)False

Question 13

The King Solomon Mining Company is contemplating a cash tender offer for the outstanding shares of Roanoke Coal Corporation.Roanoke Coal is expected to provide $162,500 in after-tax cash flow (after tax income plus CCA)each year for the next 20 years.In addition,Roanoke has a $630,000 tax loss carry-forward that King Solomon Mining can use over the next two years ($315,000 per year).
If King Solomon Mining's corporate tax rate is 34% and its cost of capital is 12%,what is the maximum cash price it should be willing to pay to acquire Roanoke?

Accepted Answer

Present value of after-tax cash flows:
@#IMG-DLM&

Question 14

The portfolio effect in a merger has to do with:

Accepted Answer

A)  increasing EPS. 
B)  reducing risk. 
C)  creating tax advantages. 
D)  writing off goodwill. 
A)  increasing EPS. 
B)  reducing risk. 
C)  creating tax advantages. 
D)  writing off goodwill.

Question 15

Which of the following statements is true of mergers and amalgamations in Canada?

Accepted Answer

A)  The terms "merger" and "amalgamation" have no legal definition. 
B)  The term "merger" is legally defined and the term "amalgamation" is not. 
C)  The term "amalgamation" is legally defined and the term "merger" is not. 
D)  Amalgamation means one company purchases the shares of another and merger means a statutory combination under one of the Provincial Corporations Act,the Canada Corporations Act,or the Canada Business Corporations Act. 
A)  The terms "merger" and "amalgamation" have no legal definition. 
B)  The term "merger" is legally defined and the term "amalgamation" is not. 
C)  The term "amalgamation" is legally defined and the term "merger" is not. 
D)  Amalgamation means one company purchases the shares of another and merger means a statutory combination under one of the Provincial Corporations Act,the Canada Corporations Act,or the Canada Business Corporations Act.

Question 16

If the potential buyer cannot come to agreement on merger terms with the potential seller's management and board of directors describe which two alternatives are still open to the potential buyer.

Accepted Answer

1. The buyer can ask the seller's shareh

Question 17

Synergy is said to occur when the whole is:

Accepted Answer

A)  equal to the sum of the parts. 
B)  less than the sum of the parts. 
C)  greater than the sum of the parts. 
D)  greater than or equal to the sum of the parts. 
A)  equal to the sum of the parts. 
B)  less than the sum of the parts. 
C)  greater than the sum of the parts. 
D)  greater than or equal to the sum of the parts.

Question 18

Discuss briefly the diversification benefits and pitfalls of a merger.

Accepted Answer

Diversification by combining entities wi

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

While a horizontal merger may improve profitability,it will not necessarily reduce the portfolio risk of the acquiring company.

Accepted Answer

A) True 
 B)False

In a merger,the short-term and long-term effect on EPS varies according to the relative P/E ratios and the differential future growth rates of the two firms.

Total earnings \ 2,000,000 \ 1,000,000 Number of shares outstanding 400,000 100,000 Earnings per share \ 5.00 \ 10.00 Price/earnings 6 3 Market price/share 30.00 \ 30.00 -Which of the following would be true concerning the EPS of Company A.in 5 years? Company A's EPS would be:

When negotiating a merger offer,management and shareholders may disagree on whether a bid should be accepted.

List and describe financial motives for mergers.

In a horizontal merger,the integration that occurs comes from acquiring companies that supply resources to the company's production process.

If the acquiring firm's P/E ratio is greater than the P/E of the acquired firm,the surviving firm will automatically get an increase in EPS.

List and describe nonfinancial motives for mergers.

Which of the following is not a financial motive but rather an operating motive for merger and consolidation?

When one company offers a large premium for another company,most of the upward movement in share price occurs after the public announcement of the merger offer and thus offers the best opportunity for profit to small investors.

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

Selling shareholders may receive a price well above current market value.

The portfolio effect in a merger has to do with:

Which of the following statements is true of mergers and amalgamations in Canada?

If the potential buyer cannot come to agreement on merger terms with the potential seller's management and board of directors describe which two alternatives are still open to the potential buyer.

Synergy is said to occur when the whole is:

Discuss briefly the diversification benefits and pitfalls of a merger.

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.

While a horizontal merger may improve profitability,it will not necessarily reduce the portfolio risk of the acquiring company.

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

In a merger,the short-term and long-term effect on EPS varies according to the relative P/E ratios and the differential future growth rates of the two firms.

Total earnings \ 2,000,000 \ 1,000,000 Number of shares outstanding 400,000 100,000 Earnings per share \ 5.00 \ 10.00 Price/earnings 6 3 Market price/share 30.00 \ 30.00 -Which of the following would be true concerning the EPS of Company A.in 5 years? Company A's EPS would be:

When negotiating a merger offer,management and shareholders may disagree on whether a bid should be accepted.

List and describe financial motives for mergers.

In a horizontal merger,the integration that occurs comes from acquiring companies that supply resources to the company's production process.

If the acquiring firm's P/E ratio is greater than the P/E of the acquired firm,the surviving firm will automatically get an increase in EPS.

List and describe nonfinancial motives for mergers.

Which of the following is not a financial motive but rather an operating motive for merger and consolidation?

When one company offers a large premium for another company,most of the upward movement in share price occurs after the public announcement of the merger offer and thus offers the best opportunity for profit to small investors.

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

Selling shareholders may receive a price well above current market value.

The portfolio effect in a merger has to do with:

Which of the following statements is true of mergers and amalgamations in Canada?

If the potential buyer cannot come to agreement on merger terms with the potential seller's management and board of directors describe which two alternatives are still open to the potential buyer.

Synergy is said to occur when the whole is:

Discuss briefly the diversification benefits and pitfalls of a merger.

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.

While a horizontal merger may improve profitability,it will not necessarily reduce the portfolio risk of the acquiring company.

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