Question 1

The desire to expand management and marketing capabilities is a financial motive for merging.

Accepted Answer

A) True 
 B)False

Question 2

The stock market reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business,or if it seems to sharpen the company's focus.

Accepted Answer

A) True 
 B)False

Question 3

Shareholders of acquired firms in mergers tend to be more concerned with future earnings and dividends exchanged than with the market value exchanged.

Accepted Answer

A) True 
 B)False

Question 4

Company A buys Company B for $3,500,000. Company A had a pre-merger net worth of $8,000,000; Company B's net worth was $2,000,000. The transaction was accounted for as a pooling of interests. Company A wants to write off any available goodwill as slowly as allowable.
-Over how many years can goodwill be written off for accounting purposes?

Accepted Answer

A)  0 years 
B)  20 years 
C)  40 years 
D)  50 years 
A)  0 years 
B)  20 years 
C)  40 years 
D)  50 years

Question 5

The primary advantage of a holding company is that it affords opportunities for leverage.

Accepted Answer

A) True 
 B)False

Question 6

Following a merger,the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

Accepted Answer

A) True 
 B)False

Question 7

In a merger,two or more companies are combined to form an entirely new entity.

Accepted Answer

A) True 
 B)False

Question 8

When analyzing a going concern acquisition the financial manager should consider:

Accepted Answer

A)  the net present value of the firm post-acquisition. 
B)  the net book value of the firm post-acquisition. 
C)  the net present value of the firm pre-acquisition. 
D)  the net book value of the firm pre-acquisition. 
A)  the net present value of the firm post-acquisition. 
B)  the net book value of the firm post-acquisition. 
C)  the net present value of the firm pre-acquisition. 
D)  the net book value of the firm pre-acquisition.

Question 9

Which of the following is not a potential benefit of a merger?

Accepted Answer

A)  Greater access to financial markets,and thus,be in a better position to raise debt and equity capital. 
B)  Achieving risk reduction while perhaps maintaining the firm's rate of return. 
C)  Tax loss carry-forward might be available in a merger if one of the firms has previously sustained a tax loss. 
D)  Increased standard deviation of earnings per share. 
A)  Greater access to financial markets,and thus,be in a better position to raise debt and equity capital. 
B)  Achieving risk reduction while perhaps maintaining the firm's rate of return. 
C)  Tax loss carry-forward might be available in a merger if one of the firms has previously sustained a tax loss. 
D)  Increased standard deviation of earnings per share.

Question 10

Poison pills are usually put in place when one shareholder acquires a certain number of outstanding shares.

Accepted Answer

A) True 
 B)False

Question 11

Goodwill may be created when a pooling of interests' merger is utilized.

Accepted Answer

A) True 
 B)False

Question 12

A purchase of assets merger recording is desirable due to the possibility of the creation of goodwill on the books of the surviving firm.

Accepted Answer

A) True 
 B)False

Question 13

A tax loss carry-forward is a benefit to the acquired firm's shareholders.

Accepted Answer

A) True 
 B)False

Question 14

The Sheridan Corporation is considering a merger with the Kent Company which has 600,000 outstanding shares selling for $20.An investment dealer has advised that to succeed in its merger Sheridan Corp.would have to offer $40 per share for Kent's stock.Sheridan Corp.stock is selling for $25.How many shares of Sheridan Corp.stock would have to be exchanged to acquire all of Kent's stock?

Accepted Answer

A)  960,000 shares 
B)  600,000 shares 
C)  750,000 shares 
D)  480,000 shares 
A)  960,000 shares 
B)  600,000 shares 
C)  750,000 shares 
D)  480,000 shares

Question 15

"Poison pills" are strategies that reduce the value of a firm if it is taken over by a corporate raider.

Accepted Answer

A) True 
 B)False

Question 16

One advantage of receiving stock instead of cash in a buy-out is the deferment of the tax payment until the stock received is actually sold.

Accepted Answer

A) True 
 B)False

Question 17

If an acquiring firm's merger proposal was initially rejected by a target firm's management and board of directors,the acquiring firm could utilize a tender offer to gain control of the target firm.

Accepted Answer

A) True 
 B)False

Question 18

The financial motives for merger activity include all of the following except:

Accepted Answer

A)  the portfolio effect. 
B)  improved financial posture and greater debt. 
C)  the utilization of tax loss carry-forwards. 
D)  vertical integration. 
A)  the portfolio effect. 
B)  improved financial posture and greater debt. 
C)  the utilization of tax loss carry-forwards. 
D)  vertical integration.

Question 19

Vertical integration is usually prohibited or severely restricted by government competition regulations.

Accepted Answer

A) True 
 B)False

Question 20

A tender offer describes the attempted purchase of a firm with the consent of that firm's management.

Accepted Answer

A) True 
 B)False

The desire to expand management and marketing capabilities is a financial motive for merging.

The stock market reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business,or if it seems to sharpen the company's focus.

Shareholders of acquired firms in mergers tend to be more concerned with future earnings and dividends exchanged than with the market value exchanged.

The primary advantage of a holding company is that it affords opportunities for leverage.

Following a merger,the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

In a merger,two or more companies are combined to form an entirely new entity.

When analyzing a going concern acquisition the financial manager should consider:

Which of the following is not a potential benefit of a merger?

Poison pills are usually put in place when one shareholder acquires a certain number of outstanding shares.

Goodwill may be created when a pooling of interests' merger is utilized.

A purchase of assets merger recording is desirable due to the possibility of the creation of goodwill on the books of the surviving firm.

A tax loss carry-forward is a benefit to the acquired firm's shareholders.

"Poison pills" are strategies that reduce the value of a firm if it is taken over by a corporate raider.

One advantage of receiving stock instead of cash in a buy-out is the deferment of the tax payment until the stock received is actually sold.

If an acquiring firm's merger proposal was initially rejected by a target firm's management and board of directors,the acquiring firm could utilize a tender offer to gain control of the target firm.

The financial motives for merger activity include all of the following except:

Vertical integration is usually prohibited or severely restricted by government competition regulations.

A tender offer describes the attempted purchase of a firm with the consent of that firm's management.

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

The desire to expand management and marketing capabilities is a financial motive for merging.

The stock market reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business,or if it seems to sharpen the company's focus.

Shareholders of acquired firms in mergers tend to be more concerned with future earnings and dividends exchanged than with the market value exchanged.

The primary advantage of a holding company is that it affords opportunities for leverage.

Following a merger,the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

In a merger,two or more companies are combined to form an entirely new entity.

When analyzing a going concern acquisition the financial manager should consider:

Which of the following is not a potential benefit of a merger?

Poison pills are usually put in place when one shareholder acquires a certain number of outstanding shares.

Goodwill may be created when a pooling of interests' merger is utilized.

A purchase of assets merger recording is desirable due to the possibility of the creation of goodwill on the books of the surviving firm.

A tax loss carry-forward is a benefit to the acquired firm's shareholders.

"Poison pills" are strategies that reduce the value of a firm if it is taken over by a corporate raider.

One advantage of receiving stock instead of cash in a buy-out is the deferment of the tax payment until the stock received is actually sold.

If an acquiring firm's merger proposal was initially rejected by a target firm's management and board of directors,the acquiring firm could utilize a tender offer to gain control of the target firm.

The financial motives for merger activity include all of the following except:

Vertical integration is usually prohibited or severely restricted by government competition regulations.

A tender offer describes the attempted purchase of a firm with the consent of that firm's management.

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