Exam 18: Mergers, Lbos, Divestitures, and Business Failure

The selling of some of a firm's assets is called ________.

The value of a firm measured as the sum of the values of its operating units if each were sold separately is known as a firm's breakup value.

Which of the following increases the chances of business failures?

If the P/E paid for a target company is equal to the P/E of the acquiring company, the effect on the earnings per share of the acquired company will be ________.

Methods of divestiture include the sale of a product line to another firm, the sale of a unit to existing management, spin-offs, and the liquidation of assets.

The various causes that increase the chances of business failures are current ratio of 1.33, solvency ratio of greater than 20%, and rapid decrease in days' sales outstanding.

A divestiture that results in an operating unit becoming an independent company is a ________.

LBOs are an example of a financial merger undertaken to create a high-debt private corporation with improved cash flow and value.

A corporation that has voting control of one or more other corporations is called a ________.

A merger of a paper manufacturer and a logging company is an example of ________.

A combination of two or more companies that results in a firm maintaining the identity of one of the firms is ________.

In the broadest sense, activities involving expansion or contraction of a firm's operations or changes in its assets or ownership structure are called corporate restructuring.

A merger occurs when two or more firms are combined to form a completely new corporation.

A major disadvantage of holding companies is the increased risk resulting from the leverage effect.

A(n) ________ replaces the existing operating management of an insolvent firm with a selected creditor committee.

In defending against a hostile takeover, the strategy that involves the firm repurchasing through negotiation a large block of stock at a premium from one or more shareholders in order to end those shareholders' hostile takeover attempt is known as the ________ strategy.

The priority of claims established by Chapter 7 of the Bankruptcy Reform Act of 1978 gives priority to ________.

Tax loss carryforward benefits can be used in mergers.

The key benefit of a horizontal merger is its ability to reduce risk by merging firms that have different seasonal or cyclic patterns of sales and earnings.

________ is an arrangement initiated by a debtor firm to negotiate with the creditors about a plan for sustaining or liquidating the firm.