Question 1

Which of the following is not a motive for selling by the shareholders of the acquired company?

Accepted Answer

A)  Opportunity to diversify 
B)  Tax advantage 
C)  Attractive price 
D)  Avoid bias against smaller businesses 
A)  Opportunity to diversify 
B)  Tax advantage 
C)  Attractive price 
D)  Avoid bias against smaller businesses

Question 2

The impact on EPS is influenced by all but the:

Accepted Answer

A)  relative debt/equity ratios of the firms. 
B)  exchange ratio. 
C)  relative earnings growth rates of the firms. 
D)  premium paid above market value for the acquired firm. 
A)  relative debt/equity ratios of the firms. 
B)  exchange ratio. 
C)  relative earnings growth rates of the firms. 
D)  premium paid above market value for the acquired firm.

Question 3

The Prad Corporation is considering a merger with the Stone Company which has 400,000 outstanding shares selling for $25.An investment dealer has advised that to succeed in its merger Prad Corp.would have to offer $45 per share for Stones' stock.Prad Corp.stock is selling for $30.How many shares of Prad Corp.stock would have to be exchanged to acquire all of Stones' stock?

Accepted Answer

A)  266,667 shares 
B)  600,000 shares 
C)  720,000 shares 
D)  800,000 shares 
A)  266,667 shares 
B)  600,000 shares 
C)  720,000 shares 
D)  800,000 shares

Question 4

In light of accounting considerations,the acquiring company has some inducement to offer cash,and the acquired company would rather receive cash than face possible dilution.

Accepted Answer

A) True 
 B)False

Question 5

Most mergers are horizontal in nature in order to avoid the potential complications involved with the elimination of competition.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following type of merger is most likely to lead to diversification benefits?

Accepted Answer

A)  Horizontal merger 
B)  Vertical merger 
C)  Tax free exchange 
D)  Conglomerate 
A)  Horizontal merger 
B)  Vertical merger 
C)  Tax free exchange 
D)  Conglomerate

Question 7

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is a form of compensation that selling shareholders could receive?

Accepted Answer

A)  Non-taxable interest income 
B)  Retirement savings top up 
C)  Fixed income securities 
D)  Management stock options 
A)  Non-taxable interest income 
B)  Retirement savings top up 
C)  Fixed income securities 
D)  Management stock options

Question 9

Goodwill is created when a purchase of assets is used in an acquisition if the purchase price per share is well above the book value per share and 75 percent of goodwill can be considered an eligible capital expenditure,which has a 7 percent CCA rate.

Accepted Answer

A) True 
 B)False

Question 10

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 $175,000 in after-tax cash flow (after-tax income plus depreciation)each year for the next 20 years.In addition,Roanoke has a $400,000 tax loss carry-forward which King Solomon Mining can use over the next two years ($200,000 per year).
If King Solomon Mining's corporate tax rate is 34% and its cost of capital is 12%,what is the cash price it should be willing to pay to acquire Roanoke based solely on its cash-flow benefit over the next 20 years?

Accepted Answer

The answer of The King Solomon Mining Company is contemplating...

Question 11

All of the following are potential benefits to a corporation in offering share purchases rather than non-equity compensation except:

Accepted Answer

A)  a share purchase more readily qualifies a merger for a tax-free exchange. 
B)  a corporation may diminish the perceived dilutive effect of a merger. 
C)  the shareholders of the acquired firm may defer any capital gains taxes. 
D)  when the stock is sold,the tax is recognized. 
A)  a share purchase more readily qualifies a merger for a tax-free exchange. 
B)  a corporation may diminish the perceived dilutive effect of a merger. 
C)  the shareholders of the acquired firm may defer any capital gains taxes. 
D)  when the stock is sold,the tax is recognized.

Question 12

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

Accepted Answer

A)  Improved financing posture. 
B)  Portfolio effect. 
C)  Dilution of earnings per share. 
D)  Tax loss carry-forward. 
A)  Improved financing posture. 
B)  Portfolio effect. 
C)  Dilution of earnings per share. 
D)  Tax loss carry-forward.

Question 13

In planning mergers,there is a tendency to _____ synergistic benefits.

Accepted Answer

A)  overestimate 
B)  underestimate 
C)  correctly estimate 
D)  need more information 
A)  overestimate 
B)  underestimate 
C)  correctly estimate 
D)  need more information

Question 14

Statutory amalgamation under the Canada Business Corporations Act requires all merger combinations of two or more firms to form an entirely new entity.

Accepted Answer

A) True 
 B)False

Question 15

$$\begin{array} { l r r } 
&\underline{ \text { Company A }} &\underline{ \text { Company B }} \
\text { Total earnings } & \$ 2,000,000 & \$ 1,000,000 \
\text { Number of shares outstanding }  & 400,000 & 100,000 \
\text { Earnings per share } & \$ 5.00 & \$ 10.00 \
\text { Price/earnings } & 6 \mathrm { X } & 3 \mathrm { X } \
\text { Market price/share } & 30.00 & \$ 30.00
\end{array}$$
-Company A has a growth rate in EPS of 14%.Company B's growth rate in EPS is 10%.What is the post-merger growth rate assuming the facts as previously stated? (Assume no Synergy.)

Accepted Answer

A)  13.20% 
B)  10.88% 
C)  12.00% 
D)  12.67% 
A)  13.20% 
B)  10.88% 
C)  12.00% 
D)  12.67%

Question 16

Simon Manufacturing Co.is planning to acquire Garfunkel Engineering in a two-step buyout.Garfunkel has 1,500,000 shares of common stock currently outstanding,and the market price is currently at $25 per share.The first step of the buyout would offer to purchase 51% of Garfunkel Engineering common stock for $28 per share.The second step would be to exchange each remaining share of Garfunkel common for $5 in cash and a newly issued share of Simon Manufacturing convertible preferred stock,valued at $31.00 per share.
Simon Manufacturing's investment banker 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 two-step buyout?
b)What is the total cost of the single step proposal?
c)If it wants to minimize the total cost of the acquisition,what should Simon Manufacturing do?

Accepted Answer

The answer of Simon Manufacturing Co.is planning to acquire Garfunkel...

Question 17

$$\begin{array} { l r r } 
&\underline{ \text { Company A }} &\underline{ \text { Company B }} \
\text { Total earnings } & \$ 2,000,000 & \$ 1,000,000 \
\text { Number of shares outstanding }  & 400,000 & 100,000 \
\text { Earnings per share } & \$ 5.00 & \$ 10.00 \
\text { Price/earnings } & 6 \mathrm { X } & 3 \mathrm { X } \
\text { Market price/share } & 30.00 & \$ 30.00
\end{array}$$
-Assume Company A pays a 20% premium for Company B in a pooling of interests' transaction.Calculate the post-merger EPS for Company

Accepted Answer

A)  $10.00 
B)  $5.00 
C)  $7.50 
D)  $6.00 
A)  $10.00 
B)  $5.00 
C)  $7.50 
D)  $6.00

Question 18

$\begin{array} { r r } &\underline{\text { Alpha }} &\underline{ \text { Beta }} \
\text {Total earnings}& \$ 1,000,000 & \$ 600,000 \ 
\text {Number of shares outstanding}&400,000 & 200,000 \
 \text {Earnings per share}&\$ 2.50 & \$ 3.00 \ 
 \text {Price/earnings}&12 \mathrm { X } & 10 \mathrm { X } \
\text { Market price/share } & \$ 30.00 & \$ 30.00 \end{array}$
-Which of the following would be true concerning the EPS of Alpha Corp.in 5 years? Alpha'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.

Question 19

White knights:

Accepted Answer

A)  advise companies on ways to avoid being taken over. 
B)  offer a higher purchase price and a friendlier offer in the event of an unsolicited and unfriendly takeover attempt. 
C)  attempt to make money in the stock market on shares that are likely merger candidates. 
D)  buy depressed stock of quality companies when merger talks are discontinued. 
A)  advise companies on ways to avoid being taken over. 
B)  offer a higher purchase price and a friendlier offer in the event of an unsolicited and unfriendly takeover attempt. 
C)  attempt to make money in the stock market on shares that are likely merger candidates. 
D)  buy depressed stock of quality companies when merger talks are discontinued.

Question 20

A business combination of two or more companies in which the resulting firm maintains the identity of the acquiring company is defined as a:

Accepted Answer

A)  consolidation. 
B)  holding company. 
C)  conglomerate. 
D)  statutory amalgamation. 
A)  consolidation. 
B)  holding company. 
C)  conglomerate. 
D)  statutory amalgamation.

Which of the following is not a motive for selling by the shareholders of the acquired company?

The impact on EPS is influenced by all but the:

In light of accounting considerations,the acquiring company has some inducement to offer cash,and the acquired company would rather receive cash than face possible dilution.

Most mergers are horizontal in nature in order to avoid the potential complications involved with the elimination of competition.

Which of the following type of merger is most likely to lead to diversification benefits?

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

Which of the following is a form of compensation that selling shareholders could receive?

Goodwill is created when a purchase of assets is used in an acquisition if the purchase price per share is well above the book value per share and 75 percent of goodwill can be considered an eligible capital expenditure,which has a 7 percent CCA rate.

All of the following are potential benefits to a corporation in offering share purchases rather than non-equity compensation except:

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

In planning mergers,there is a tendency to _____ synergistic benefits.

Statutory amalgamation under the Canada Business Corporations Act requires all merger combinations of two or more firms to form an entirely new entity.

Total earnings \ 1,000,000 \ 600,000 Number of shares outstanding 400,000 200,000 Earnings per share \ 2.50 \ 3.00 Price/earnings 12 10 Market price/share \ 30.00 \ 30.00 -Which of the following would be true concerning the EPS of Alpha Corp.in 5 years? Alpha's EPS would be:

White knights:

A business combination of two or more companies in which the resulting firm maintains the identity of the acquiring company is defined as a:

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

Which of the following is not a motive for selling by the shareholders of the acquired company?

The impact on EPS is influenced by all but the:

In light of accounting considerations,the acquiring company has some inducement to offer cash,and the acquired company would rather receive cash than face possible dilution.

Most mergers are horizontal in nature in order to avoid the potential complications involved with the elimination of competition.

Which of the following type of merger is most likely to lead to diversification benefits?

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

Which of the following is a form of compensation that selling shareholders could receive?

Goodwill is created when a purchase of assets is used in an acquisition if the purchase price per share is well above the book value per share and 75 percent of goodwill can be considered an eligible capital expenditure,which has a 7 percent CCA rate.

All of the following are potential benefits to a corporation in offering share purchases rather than non-equity compensation except:

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

In planning mergers,there is a tendency to _____ synergistic benefits.

Statutory amalgamation under the Canada Business Corporations Act requires all merger combinations of two or more firms to form an entirely new entity.

Total earnings \ 1,000,000 \ 600,000 Number of shares outstanding 400,000 200,000 Earnings per share \ 2.50 \ 3.00 Price/earnings 12 10 Market price/share \ 30.00 \ 30.00 -Which of the following would be true concerning the EPS of Alpha Corp.in 5 years? Alpha's EPS would be:

White knights:

A business combination of two or more companies in which the resulting firm maintains the identity of the acquiring company is defined as a:

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