Question 1

What are the tax consequences of a taxable merger?

Accepted Answer

A) Selling shareholders can defer any capital gain until they sell their shares in the merged company. 
B) Depreciation tax shields are unchanged by the merger. 
C) Selling shareholders must recognize any capital gain. 
D) All goodwill must be written off immediately. 
A) Selling shareholders can defer any capital gain until they sell their shares in the merged company. 
B) Depreciation tax shields are unchanged by the merger. 
C) Selling shareholders must recognize any capital gain. 
D) All goodwill must be written off immediately.

Question 2

A conglomerate merger is one in which an acquiring firm buys a closely related firm.

Accepted Answer

A) True 
 B)False

Question 3

Who usually gains the most in a merger?

Accepted Answer

A) Acquiring firm's shareholders 
B) Acquiring firm's management 
C) Target firm's shareholders 
D) Target firm's management 
A) Acquiring firm's shareholders 
B) Acquiring firm's management 
C) Target firm's shareholders 
D) Target firm's management

Question 4

A poison pill protects the rights of shareholders.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that the market price of Company A is $50 per share and that of Company B is $20.If A offers half a share of common stock for each share of B,what is the percentage increase in wealth for B's shareholders?

Accepted Answer

A) -20% 
B) +25% 
C) -25% 
D) +20% 
A) -20% 
B) +25% 
C) -25% 
D) +20%

Question 6

The merger of two similar pharmaceutical firms is an example of a:
I.horizontal merger;
II.cross-border merger;
III.conglomerate merger;
IV.vertical merger

Accepted Answer

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

Question 7

Takeover defenses appear to favor:

Accepted Answer

A) stockholders. 
B) workers. 
C) creditors. 
D) managers. 
A) stockholders. 
B) workers. 
C) creditors. 
D) managers.

Question 8

A vertical merger is one in which the buyer expands forward in the direction of the ultimate consumer or backward toward the source of raw material.

Accepted Answer

A) True 
 B)False

Question 9

The following are sensible reasons for mergers:
I.economies of scale;
II.economics of vertical integration;
III.complementary resources;
IV.prevent target firm from wasting surplus funds;
V.eliminate target firm inefficiencies;
VI.industry consolidation

Accepted Answer

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

Question 10

When a merger of two firms is achieved by one firm,automatically assuming all the assets and all the liabilities of the other firm,such a merger requires:

Accepted Answer

A) no shareholder meeting to vote. 
B) the approval of at least 50% of the stockholders (or as specified by corporate charters or state laws)of each firm. 
C) that the management of the two firms be tossed out. 
D) that the target firm search for alternative suitors. 
A) no shareholder meeting to vote. 
B) the approval of at least 50% of the stockholders (or as specified by corporate charters or state laws)of each firm. 
C) that the management of the two firms be tossed out. 
D) that the target firm search for alternative suitors.

Question 11

The merger between Comcast and NBC Universal is an example of a:

Accepted Answer

A) horizontal merger. 
B) vertical merger. 
C) conglomerate merger. 
D) none of these options. 
A) horizontal merger. 
B) vertical merger. 
C) conglomerate merger. 
D) none of these options.

Question 12

Which of the following actions by an acquiring firm signals its belief that postmerger gains will be substantially larger than expected?

Accepted Answer

A) Acquiring firm makes a stock offer,since its stock value is priced lower than it will be postmerger. 
B) Acquiring firm makes a cash offer,since this allows the acquirer to solely benefit from gains not yet reflected in the market. 
C) Acquiring firm attempts to gain majority ownership,but not complete ownership. 
D) Acquiring firm makes an offer with the condition that management must be replaced. 
A) Acquiring firm makes a stock offer,since its stock value is priced lower than it will be postmerger. 
B) Acquiring firm makes a cash offer,since this allows the acquirer to solely benefit from gains not yet reflected in the market. 
C) Acquiring firm attempts to gain majority ownership,but not complete ownership. 
D) Acquiring firm makes an offer with the condition that management must be replaced.

Question 13

A modification of the corporate charter that requires 80% shareholder approval for a takeover is called a(n):

Accepted Answer

A) repurchase standstill provision. 
B) exclusionary self-tender. 
C) supermajority amendment. 
D) tender offer. 
A) repurchase standstill provision. 
B) exclusionary self-tender. 
C) supermajority amendment. 
D) tender offer.

Question 14

Examples of shark-repellent charter amendments include:
I.supermajority;
II.waiting period;
III.restricted voting rights;
IV.staggered board

Accepted Answer

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

Question 15

Google's acquisition of Motorola Mobility is an example of a:

Accepted Answer

A) cross-border merger. 
B) horizontal merger. 
C) conglomerate merger. 
D) vertical merger. 
A) cross-border merger. 
B) horizontal merger. 
C) conglomerate merger. 
D) vertical merger.

Question 16

As a defensive maneuver,a firm issues deep-discount bonds that are redeemable at par in the event of an unfriendly takeover.These bonds are an example of:

Accepted Answer

A) greenmail. 
B) a "scorched earth" policy. 
C) crown jewels. 
D) a poison put. 
A) greenmail. 
B) a "scorched earth" policy. 
C) crown jewels. 
D) a poison put.

Question 17

Assume the following data:
Suppose that Firm A offers 250,000 shares of the combined firm,Firm AB,to Firm B's shareholders.Calculate the cost of the 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

Exam 31: Mergers

What are the tax consequences of a taxable merger?

A conglomerate merger is one in which an acquiring firm buys a closely related firm.

Who usually gains the most in a merger?

A poison pill protects the rights of shareholders.

Suppose that the market price of Company A is $50 per share and that of Company B is $20.If A offers half a share of common stock for each share of B,what is the percentage increase in wealth for B's shareholders?

The merger of two similar pharmaceutical firms is an example of a: I.horizontal merger; II.cross-border merger; III.conglomerate merger; IV.vertical merger

Takeover defenses appear to favor:

A vertical merger is one in which the buyer expands forward in the direction of the ultimate consumer or backward toward the source of raw material.

The following are sensible reasons for mergers: I.economies of scale; II.economics of vertical integration; III.complementary resources; IV.prevent target firm from wasting surplus funds; V.eliminate target firm inefficiencies; VI.industry consolidation

When a merger of two firms is achieved by one firm,automatically assuming all the assets and all the liabilities of the other firm,such a merger requires:

The merger between Comcast and NBC Universal is an example of a:

Which of the following actions by an acquiring firm signals its belief that postmerger gains will be substantially larger than expected?

A modification of the corporate charter that requires 80% shareholder approval for a takeover is called a(n):

Examples of shark-repellent charter amendments include: I.supermajority; II.waiting period; III.restricted voting rights; IV.staggered board

Google's acquisition of Motorola Mobility is an example of a:

As a defensive maneuver,a firm issues deep-discount bonds that are redeemable at par in the event of an unfriendly takeover.These bonds are an example of:

Assume the following data: Suppose that Firm A offers 250,000 shares of the combined firm,Firm AB,to Firm B's shareholders.Calculate the cost of 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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