Question 1

Which of the following is NOT an important piece of U.S.antitrust legislation?
I.Garn-St.Germain Act;
II.Clayton Act;
III.Hart-Scott-Rodino Act

Accepted Answer

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

Question 2

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 earnings per share be for Firm A after the merger assuming that cash is used in the acquisition?

Accepted Answer

A) $6 
B) $7 
C) $8 
D) $5 
A) $6 
B) $7 
C) $8 
D) $5

Question 3

Briefly discuss takeover defenses.

Accepted Answer

The main purpose of takeover defenses is

Question 4

Supermajorities give shareholders more control over the firm.

Accepted Answer

A) True 
 B)False

Question 5

The following are methods available to change the management of a firm:
I.a successful proxy contest in which a group of shareholders vote in a new board of directors who then pick a new management team;
II.a takeover of one firm by another firm;
III.a leveraged buyout of the firm by a private group of investors

Accepted Answer

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

Question 6

The market for corporate control includes:
I.mergers;
II.spin-offs and divestitures;
III.leveraged buyouts (LBOs);
IV.privatizations

Accepted Answer

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

Question 7

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).If investors are aware that there are no economic gains from the merger,what is the price-earnings ratio of A's stock after the merger?

Accepted Answer

A) 7.5 
B) 8.3 
C) 10.0 
A) 7.5 
B) 8.3 
C) 10.0

Question 8

Many mergers that appear to make economic sense fail because managers cannot handle the complex task of integrating two firms with different:
I.production processes;
II.accounting methods;
III.corporate cultures

Accepted Answer

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

Question 9

Given the following data: $$\begin{array} { l c c c } 
& \text { Firm A } & \text { Firm B } & \text { Firm AB (after merger of A and B) } \
\text { Market Price per share } & \$ 20 & \$ 10 & \
\text { Number of shares } & 1,000,000 & 500,000 & \
\text { Market value of the firm } & \$ 20 \text { million } & \$ 5 \text { million } & \$ 30 \text { million }
\end{array}$$
If Firm A offers 250,000 shares to Firm B's shareholders,calculate the cost of the merger:

Accepted Answer

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

Question 10

Briefly discuss the different forms of acquisition.

Accepted Answer

Basically an acquisition can take three

Question 11

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.How much do Firm A's shareholders gain from 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 12

Compensation paid to top management in the event of a takeover is called a:

Accepted Answer

A) poison pill. 
B) golden parachute. 
C) self-tender. 
D) buyout. 
A) poison pill. 
B) golden parachute. 
C) self-tender. 
D) buyout.

Question 13

Which of the following actions is least effective in changing a firm's strategy?

Accepted Answer

A) Conducting a successful proxy contest 
B) Threatening a takeover from a rival firm 
C) Organizing a leveraged buyout by well-known wealthy private investors 
D) The sale of shares by a minority shareholder 
A) Conducting a successful proxy contest 
B) Threatening a takeover from a rival firm 
C) Organizing a leveraged buyout by well-known wealthy private investors 
D) The sale of shares by a minority shareholder

Question 14

A dissident group solicits votes in an attempt to replace existing management.This is called a:

Accepted Answer

A) proxy fight. 
B) shareholder derivative action. 
C) tender offer. 
D) management freeze-out. 
A) proxy fight. 
B) shareholder derivative action. 
C) tender offer. 
D) management freeze-out.

Question 15

It appears that target companies capture most of the gains in hostile takeovers.

Accepted Answer

A) True 
 B)False

Question 16

Briefly describe some of the good motives for mergers.

Accepted Answer

There are several good motives for merge

Question 17

The "Bootstrap Game" may mislead investors regarding the prospects for a merged firm.How are investors potentially misled?

Accepted Answer

A) The firm's management generates cost savings via temporary layoffs of highly paid executives. 
B) The firm gains intellectual property in a merger,but then divests the operations of the target firm. 
C) The firm's management changes the name of an acquired firm to feign diversification. 
D) The firm acquires a target with low a P/E ratio,which generates short-term earnings per share growth without any true economic advantage. 
A) The firm's management generates cost savings via temporary layoffs of highly paid executives. 
B) The firm gains intellectual property in a merger,but then divests the operations of the target firm. 
C) The firm's management changes the name of an acquired firm to feign diversification. 
D) The firm acquires a target with low a P/E ratio,which generates short-term earnings per share growth without any true economic advantage.

Question 18

Briefly describe the different types of mergers.

Accepted Answer

There are essentially three types of mer

Question 19

Who gains the most in mergers?

Accepted Answer

Generally,sellers do better than buyers

Question 20

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 gain from the merger.

Accepted Answer

A) $600 
B) $150 
C) $550 
D) $700 
A) $600 
B) $150 
C) $550 
D) $700

Exam 31: Mergers

Which of the following is NOT an important piece of U.S.antitrust legislation? I.Garn-St.Germain Act; II.Clayton Act; III.Hart-Scott-Rodino Act

Briefly discuss takeover defenses.

Supermajorities give shareholders more control over the firm.

The market for corporate control includes: I.mergers; II.spin-offs and divestitures; III.leveraged buyouts (LBOs); IV.privatizations

Many mergers that appear to make economic sense fail because managers cannot handle the complex task of integrating two firms with different: I.production processes; II.accounting methods; III.corporate cultures

Given 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 offers 250,000 shares to Firm B's shareholders,calculate the cost of the merger:

Briefly discuss the different forms of acquisition.

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.How much do Firm A's shareholders gain from this merger?

Compensation paid to top management in the event of a takeover is called a:

Which of the following actions is least effective in changing a firm's strategy?

A dissident group solicits votes in an attempt to replace existing management.This is called a:

It appears that target companies capture most of the gains in hostile takeovers.

Briefly describe some of the good motives for mergers.

The "Bootstrap Game" may mislead investors regarding the prospects for a merged firm.How are investors potentially misled?

Briefly describe the different types of mergers.

Who gains the most in mergers?

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 gain from the merger.

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

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