Question 1

The easiest task for the managers of an acquiring firm is the integration of the target firm.

Accepted Answer

A) True 
 B)False

Question 2

If an acquisition is completed using a cash payment,then the acquisition is:

Accepted Answer

A) taxable. 
B) viewed as exchanging of shares and is not taxed. 
C) a tax-free transaction as no capital gains or losses are recognized. 
D) none of these options. 
A) taxable. 
B) viewed as exchanging of shares and is not taxed. 
C) a tax-free transaction as no capital gains or losses are recognized. 
D) none of these options.

Question 3

The following data on a merger is given: $$\begin{array} { l c l l } 
& \text { Firm A } & \text { Firm B Firm AB } \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total earnings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$$
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.What will be the postmerger price per share for Firm A's stock if Firm A pays in cash?

Accepted Answer

A) $108 
B) $110 
C) $102 
D) $114 
A) $108 
B) $110 
C) $102 
D) $114

Question 4

The gain from a merger is computed as: Gain = PVAB - (PVA + PVB).

Accepted Answer

A) True 
 B)False

Question 5

The following data on a merger is given: $$\begin{array} { l c l l } 
& \text { Firm A } & \text { Firm B Firm AB } \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total earnings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$$
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the NPV of the merger.

Accepted Answer

A) $200 
B) $400 
C) $600 
D) $150 
A) $200 
B) $400 
C) $600 
D) $150

Question 6

Which of the following factors influence the acquiring firm's choice between merger and an acquisition of stock?
I.Shareholders are dealt with directly to bypass target management and board of directors.
II.In a tender offer,usually some minority shareholders do not tender,stopping complete firm absorption.
III.Target management may be unfriendly and resist an offer.Resistance often increases the acquisition price.

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I,II,and III 
A) I only 
B) II only 
C) III only 
D) I,II,and III

Question 7

If Firm A acquires Firm B and Firm B's shareholders are given the fraction x of the combined firm,then the cost of this merger is:

Accepted Answer

A) Cost = (PVA
B) - (x)PVB 
B) Cost = (x)PVAB - PVB 
C) Cost = PVAB - (x)PVA 
D) Cost = (x)PVAB - (x)PVB 
A) Cost = (PVA
B) - (x)PVB 
B) Cost = (x)PVAB - PVB 
C) Cost = PVAB - (x)PVA 
D) Cost = (x)PVAB - (x)PVB

Question 8

Diversification is a very sensible reason for two companies to merge.

Accepted Answer

A) True 
 B)False

Question 9

Historically,merger activity increases with which market condition?

Accepted Answer

A) Low stock market prices 
B) High stock market prices 
C) Moderate market prices 
D) Merger activity is relatively constant throughout all market conditions. 
A) Low stock market prices 
B) High stock market prices 
C) Moderate market prices 
D) Merger activity is relatively constant throughout all market conditions.

Question 10

The PEN Corporation with a book value of $20 million and a market value of $30 million has acquired the CNC 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,then the total assets on the books of the new company will be:

Accepted Answer

A) $38 million 
B) $39 million 
C) $29 million 
D) $26 million 
A) $38 million 
B) $39 million 
C) $29 million 
D) $26 million

Question 11

The following are pre-offer defenses: litigation,asset restructuring,and liability restructuring.

Accepted Answer

A) True 
 B)False

Question 12

Firm A has a value of $100 million and Firm B has a value of $60 million.Merging the two would enable cost savings with a present value of $20 million.Firm A purchases Firm B for $65 million.How much do Firm A's shareholders gain from this merger?

Accepted Answer

A) $30 million 
B) $20 million 
C) $15 million 
D) $5 million 
A) $30 million 
B) $20 million 
C) $15 million 
D) $5 million

Question 13

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 cost of this merger?

Accepted Answer

A) $30 million 
B) $20 million 
C) $5 million 
D) $10 million 
A) $30 million 
B) $20 million 
C) $5 million 
D) $10 million

Question 14

Assume the following data: $$\begin{array} { l c c c } 
& \text { Firm A } & \text { Firm B } & \text { Firm AB (after merger of } A \text { and B) } \
\text { Market Price per share } & \$ 20 & \$ 10 & \
\text { Number of shares } & 1,000,000 & 500,000 & \
\text { Market value of the firm } & \$ 20 \text { million } & \$ 5 \text { million } & \$ 30 \text { million }
\end{array}$$
If Firm A intends to pay $7 million cash for Firm B,then calculate the cost of this merger.

Accepted Answer

A) $2 million 
B) $3 million 
C) $1 million 
D) zero 
A) $2 million 
B) $3 million 
C) $1 million 
D) zero

Question 15

If Firm A acquires Firm B for cash,then the cost of the merger is equal to the cash payment minus Firm B's value as a separate entity.

Accepted Answer

A) True 
 B)False

Question 16

Firm A has a value of $200 million and Firm B has a value of $120 million.Merging the two would enable cost savings with a present value of $30 million.Firm A purchases Firm B for $130 million.What is the cost of this merger?

Accepted Answer

A) $30 million 
B) $20 million 
C) $15 million 
D) $10 million 
A) $30 million 
B) $20 million 
C) $15 million 
D) $10 million

Question 17

Explain the central tenet of the Clayton Act of 1914.

Accepted Answer

The Clayton Act of 1914 forbids an acqui

Question 18

Briefly explain what is meant by "the cost of acquisition" in the context of a merger?

Accepted Answer

The cost of an acquisition is the cash p

Question 19

Two companies can sensibly consider a merger if they have complementary resources.

Accepted Answer

A) True 
 B)False

Question 20

Antitrust law can be enforced by the U.S.federal government by:
I.a civil suit brought by the Justice Department;
II.proceedings initiated by the Federal Trade Commission (FTC);
III.proceedings initiated by the Securities and Exchange Commission (SEC)

Accepted Answer

A) I only 
B) I and II only 
C) I,II,and III 
D) II only 
A) I only 
B) I and II only 
C) I,II,and III 
D) II only

Exam 31: Mergers

The easiest task for the managers of an acquiring firm is the integration of the target firm.

If an acquisition is completed using a cash payment,then the acquisition is:

The gain from a merger is computed as: Gain = PVAB - (PVA + PVB).

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 NPV of the merger.

If Firm A acquires Firm B and Firm B's shareholders are given the fraction x of the combined firm,then the cost of this merger is:

Diversification is a very sensible reason for two companies to merge.

Historically,merger activity increases with which market condition?

The following are pre-offer defenses: litigation,asset restructuring,and liability restructuring.

Firm A has a value of $100 million and Firm B has a value of $60 million.Merging the two would enable cost savings with a present value of $20 million.Firm A purchases Firm B for $65 million.How much do Firm A's shareholders gain from this merger?

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 cost of this merger?

Assume the following data: Firm A Firm B Firm AB (after merger of A and B) Market Price per share \ 20 \ 10 Number of shares 1,000,000 500,000 Market value of the firm \ 20 million \ 5 million \ 30 million If Firm A intends to pay $7 million cash for Firm B,then calculate the cost of this merger.

If Firm A acquires Firm B for cash,then the cost of the merger is equal to the cash payment minus Firm B's value as a separate entity.

Firm A has a value of $200 million and Firm B has a value of $120 million.Merging the two would enable cost savings with a present value of $30 million.Firm A purchases Firm B for $130 million.What is the cost of this merger?

Explain the central tenet of the Clayton Act of 1914.

Briefly explain what is meant by "the cost of acquisition" in the context of a merger?

Two companies can sensibly consider a merger if they have complementary resources.

Antitrust law can be enforced by the U.S.federal government by: I.a civil suit brought by the Justice Department; II.proceedings initiated by the Federal Trade Commission (FTC); III.proceedings initiated by the Securities and Exchange Commission (SEC)

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Corporate Restructuring

Governance and Corporate Control Around the World

Filters

The gain from a merger is computed as: Gain = PV_AB - (PV_A + PV_B).