Exam 31: Mergers
Exam 1: Introduction to Corporate Finance57 Questions
Exam 2: How to Calculate Present Values103 Questions
Exam 3: Valuing Bonds60 Questions
Exam 4: The Value of Common Stocks67 Questions
Exam 5: Net Present Value and Other Investment Criteria74 Questions
Exam 6: Making Investment Decisions With the Net Present Value Rule76 Questions
Exam 7: Introduction to Risk and Return89 Questions
Exam 8: Portfolio Theory and the Capital Asset Pricing Model86 Questions
Exam 9: Risk and the Cost of Capital75 Questions
Exam 10: Project Analysis75 Questions
Exam 11: Investment, Strategy, and Economic Rents70 Questions
Exam 12: Agency Problems, Compensation, and Performance Measurement67 Questions
Exam 13: Efficient Markets and Behavioral Finance63 Questions
Exam 14: An Overview of Corporate Financing72 Questions
Exam 15: How Corporations Issue Securities70 Questions
Exam 16: Payout Policy73 Questions
Exam 17: Does Debt Policy Matter81 Questions
Exam 18: How Much Should a Corporation Borrow75 Questions
Exam 19: Financing and Valuation84 Questions
Exam 20: Understanding Options76 Questions
Exam 21: Valuing Options75 Questions
Exam 22: Real Options59 Questions
Exam 23: Credit Risk and the Value of Corporate Debt53 Questions
Exam 24: The Many Different Kinds of Debt98 Questions
Exam 25: Leasing55 Questions
Exam 26: Managing Risk65 Questions
Exam 27: Managing International Risks64 Questions
Exam 28: Financial Analysis57 Questions
Exam 29: Financial Planning59 Questions
Exam 30: Working Capital Management90 Questions
Exam 31: Mergers77 Questions
Exam 32: Corporate Restructuring70 Questions
Exam 33: Governance and Corporate Control Around the World54 Questions
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Companies A and B are valued as follows:
Company A now acquires B by offering one (new)share of A for every two shares of B (that is,after the merger,there are 2500 shares of A outstanding).Suppose that the merger really does increase the value of the combined firms by $20,000..What is the cost of the merger?

Free
(Multiple Choice)
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Correct Answer:
D
Firm A has a value of $100 million and Firm B has a value of $70 million.Merging the two would enable cost savings with a present value of $20 million.Firm A purchases Firm B for $75 million.What is the gain from this merger?
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(Multiple Choice)
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Correct Answer:
B
Following an acquisition,the acquiring firm's balance sheet shows an asset labeled "goodwill." What form of merger accounting was used?
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(Multiple Choice)
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Correct Answer:
C
Merging in order to lower financing costs is likely to fail for the following reason:
(Multiple Choice)
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The following are sensible motives for mergers:
I.prevent target firm from wasting surplus funds;
II.eliminate target firm inefficiencies;
III.complementary resources;
IV.increasing earnings per share (EPS)
(Multiple Choice)
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The main difference to shareholders between a tax-free and a taxable acquisition is that:
I.in a tax-free acquisition the shares are only exchanged,while in a taxable transaction the shares are considered sold and realized capital gains or losses are taxed;
II.in a tax-free acquisition a capital gain or loss is realized and then new shares are issued; in a taxable transaction the assets are revalued,taxed on any capital gains or losses,and then shares are exchanged;
III.in a tax-free acquisition the shareholders simply take the cash and depart,while in a taxable transaction the shareholders must stay with the new entity
(Multiple Choice)
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A would-be acquirer making a tender offer directly to shareholders represents another form of a proxy fight.
(True/False)
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The DOC Corporation with a book value of $20 million and a market value of $30 million has acquired the CIC Corporation with a book value of $6 million and a market value of $8 million at a price of $9 million.If the transaction is a purchase,will there be any goodwill,and if so,what is the amount of goodwill?
(Multiple Choice)
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The following are dubious reasons for mergers:
I.diversification;
II.increase earnings per share (EPS);
III.lower financing costs;
IV.industry consolidation
(Multiple Choice)
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Name the agencies that have successfully blocked mergers on antitrust (antimonopoly)grounds.
(Short Answer)
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Firm A has a value of $150 million and Firm B has a value of $100 million.Merging the two would enable cost savings with a present value of $40 million.Firm A purchases Firm B for $120 million.What is the gain from this merger?
(Multiple Choice)
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The following data on a merger is given: Firm A Firm B Firm AB Price per share \ 100 \ 10 Total earnings \ 500 \ 300 Shares outstanding 100 40 Total value \ 10,000 \ 400 \ 11,000
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the postmerger P/E ratio assuming cash is used in the acquisition.
(Multiple Choice)
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What role do hedge funds take when they speculate on merger activity by buying stock of firms that are "in play"?
(Multiple Choice)
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In the purchase method of merger accounting a new asset category called goodwill is created.
(True/False)
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