Question 1

The first and last priorities for receiving funds in a bankruptcy are:

Accepted Answer

A)  administrative expenses of the bankruptcy proceedings; common stockholders. 
B)  unpaid employees, unsecured creditors. 
C)  secured creditors; common stockholders 
D)  customers; preferred stockholders. 
A)  administrative expenses of the bankruptcy proceedings; common stockholders. 
B)  unpaid employees, unsecured creditors. 
C)  secured creditors; common stockholders 
D)  customers; preferred stockholders.

Question 2

In strategic mergers, success is based on making money through the operation of financial markets rather than through the operation of the underlying business.

Accepted Answer

A) True 
 B)False

Question 3

Anti-trust legislation:

Accepted Answer

A)  is enforced by the Justice Department as well as the Federal Trade Commission. 
B)  no longer applies to business combinations. 
C)  does not apply to conglomerate mergers. 
D)  a and c 
E)  None of the above 
A)  is enforced by the Justice Department as well as the Federal Trade Commission. 
B)  no longer applies to business combinations. 
C)  does not apply to conglomerate mergers. 
D)  a and c 
E)  None of the above

Question 4

In a merger, the minimum total price acceptable to the target's shareholders is:

Accepted Answer

A)  more than the pre-merger value of the firm. 
B)  the additional value created by the merger in the eyes of the acquirer. 
C)  the pre-merger value of the firm. 
D)  b plus c 
E)  None of the above 
A)  more than the pre-merger value of the firm. 
B)  the additional value created by the merger in the eyes of the acquirer. 
C)  the pre-merger value of the firm. 
D)  b plus c 
E)  None of the above

Question 5

A firm acquires a competitor in a vertical merger.

Accepted Answer

A) True 
 B)False

Question 6

Alpha Corp is thinking about acquiring Omega Inc. Omega generated cash of $50M last year and is expected to grow at 5% indefinitely. Alpha expects synergies of at least $15M per year after the merger which will also grow at 5%. Omega has 20M shares of common stock outstanding on which stockholders earn a return of about 15%. What is the maximum price per share Alpha should offer for Omega?

Accepted Answer

Current cash flow = $50M + $15

Question 7

According to the IRS, tax savings cannot be the only reason for a merger.

Accepted Answer

A) True 
 B)False

Question 8

In discounting the forecasted future cash flows of a target company for valuation purposes, which discount rate should be used?

Accepted Answer

A)  WACC of the acquiring company 
B)  Cost of equity of the acquiring company 
C)  Cost of debt of the target company 
D)  Cost of equity of the target company 
E)  WACC of the target company 
A)  WACC of the acquiring company 
B)  Cost of equity of the acquiring company 
C)  Cost of debt of the target company 
D)  Cost of equity of the target company 
E)  WACC of the target company

Question 9

The maximum purchase price acceptable to the acquiring firm in a merger:

Accepted Answer

A)  cannot exceed the pre-merger value of the target firm. 
B)  is always equal to the pre-merger value of the target firm. 
C)  is always less than the pre-merger value of the target firm. 
D)  a and c 
E)  None of the above 
A)  cannot exceed the pre-merger value of the target firm. 
B)  is always equal to the pre-merger value of the target firm. 
C)  is always less than the pre-merger value of the target firm. 
D)  a and c 
E)  None of the above

Question 10

A leveraged buyout is a transaction in which a publicly traded company is converted into a privately held firm.

Accepted Answer

A) True 
 B)False

Question 11

Internal growth is perhaps the most persuasive reason for mergers.

Accepted Answer

A) True 
 B)False

Question 12

In a friendly merger, the target's management and board of directors approve of the deal and cooperate with the acquiring company.

Accepted Answer

A) True 
 B)False

Question 13

Although the courts usually permit bankrupt firms to continue in business, they protect creditors' interests by requiring:

Accepted Answer

A)  that all disbursements be approved by the court. 
B)  that all checks be countersigned by a bankruptcy judge. 
C)  that a trustee oversees the company's operation while it is in bankruptcy. 
D)  All of the above 
A)  that all disbursements be approved by the court. 
B)  that all checks be countersigned by a bankruptcy judge. 
C)  that a trustee oversees the company's operation while it is in bankruptcy. 
D)  All of the above

Question 14

A combination of companies that compete directly is a:

Accepted Answer

A)  conglomerate merger. 
B)  vertical merger. 
C)  horizontal merger. 
D)  takeover. 
A)  conglomerate merger. 
B)  vertical merger. 
C)  horizontal merger. 
D)  takeover.

Question 15

In many financial mergers, private equity groups are taking advantage of firms whose market value is less than their intrinsic value.

Accepted Answer

A) True 
 B)False

Question 16

Elliott Mfg. is considering acquiring Fox Inc. Fox's cash flows have been estimated in detail for the next three years and are $40M, $45M and $50M respectively. A terminal value consistent with that estimate has been calculated at $700M. The risk-adjusted discount rate for analysis is 12%.
a.	In total, what should Fox be worth to Elliott?
b.	If Fox, Inc. has 12 million shares outstanding, what is the most Elliott should offer, per share, for its stock?
c.	What growth rate did Elliott assume in calculating Fox's terminal value?
d.	If the growth rate assumption changes to 8%, what is the new maximum offer?

Accepted Answer

@#IMG-DLM& @#IMG-DLM& 50 + 50g = 84 -700g
750g = 3

Question 17

Management's propensity to overestimate the value of the target company in a merger can lead to:

Accepted Answer

A)  financial disaster for the acquiring company. 
B)  a financial windfall for the stockholders of the target company. 
C)  an irrational transfer of wealth from the shareholders of the acquirer to those of the target. 
D)  All of the above 
A)  financial disaster for the acquiring company. 
B)  a financial windfall for the stockholders of the target company. 
C)  an irrational transfer of wealth from the shareholders of the acquirer to those of the target. 
D)  All of the above

Question 18

The most likely impetus for a merger between two companies in the same business but in different regions is ____.

Accepted Answer

A)  external growth 
B)  internal growth 
C)  synergy 
D)  to form a conglomerate 
A)  external growth 
B)  internal growth 
C)  synergy 
D)  to form a conglomerate

Question 19

Economies of scale in production and distribution would generally be highest in:

Accepted Answer

A)  vertical mergers. 
B)  product extension mergers. 
C)  horizontal mergers. 
D)  any form of merger. 
A)  vertical mergers. 
B)  product extension mergers. 
C)  horizontal mergers. 
D)  any form of merger.

Question 20

A junk bond is:

Accepted Answer

A)  a low risk bond that pays high yields. 
B)  a high-risk bond that pays low yields. 
C)  a high-risk bond that pays high yields. 
D)  a low risk bond that pays low yields. 
A)  a low risk bond that pays high yields. 
B)  a high-risk bond that pays low yields. 
C)  a high-risk bond that pays high yields. 
D)  a low risk bond that pays low yields.

The first and last priorities for receiving funds in a bankruptcy are:

In strategic mergers, success is based on making money through the operation of financial markets rather than through the operation of the underlying business.

Anti-trust legislation:

In a merger, the minimum total price acceptable to the target's shareholders is:

A firm acquires a competitor in a vertical merger.

According to the IRS, tax savings cannot be the only reason for a merger.

In discounting the forecasted future cash flows of a target company for valuation purposes, which discount rate should be used?

The maximum purchase price acceptable to the acquiring firm in a merger:

A leveraged buyout is a transaction in which a publicly traded company is converted into a privately held firm.

Internal growth is perhaps the most persuasive reason for mergers.

In a friendly merger, the target's management and board of directors approve of the deal and cooperate with the acquiring company.

Although the courts usually permit bankrupt firms to continue in business, they protect creditors' interests by requiring:

A combination of companies that compete directly is a:

In many financial mergers, private equity groups are taking advantage of firms whose market value is less than their intrinsic value.

Management's propensity to overestimate the value of the target company in a merger can lead to:

The most likely impetus for a merger between two companies in the same business but in different regions is ____.

Economies of scale in production and distribution would generally be highest in:

A junk bond is:

Foundations

Financial Background: a Review of Accounting, Financial Statements, and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System, Corporate Governance, and Interest

Time Value of Money

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends

The Management of Working Capital Multiple Choice Questions

The Management of Working Capital

International Finance

Filters

Exam 18: Corporate Restructuring

The first and last priorities for receiving funds in a bankruptcy are:

In strategic mergers, success is based on making money through the operation of financial markets rather than through the operation of the underlying business.

Anti-trust legislation:

In a merger, the minimum total price acceptable to the target's shareholders is:

A firm acquires a competitor in a vertical merger.

According to the IRS, tax savings cannot be the only reason for a merger.

In discounting the forecasted future cash flows of a target company for valuation purposes, which discount rate should be used?

The maximum purchase price acceptable to the acquiring firm in a merger:

A leveraged buyout is a transaction in which a publicly traded company is converted into a privately held firm.

Internal growth is perhaps the most persuasive reason for mergers.

In a friendly merger, the target's management and board of directors approve of the deal and cooperate with the acquiring company.

Although the courts usually permit bankrupt firms to continue in business, they protect creditors' interests by requiring:

A combination of companies that compete directly is a:

In many financial mergers, private equity groups are taking advantage of firms whose market value is less than their intrinsic value.

Management's propensity to overestimate the value of the target company in a merger can lead to:

The most likely impetus for a merger between two companies in the same business but in different regions is ____.

Economies of scale in production and distribution would generally be highest in:

A junk bond is:

Foundations

Financial Background: a Review of Accounting, Financial Statements, and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System, Corporate Governance, and Interest

Time Value of Money

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends

The Management of Working Capital Multiple Choice Questions

The Management of Working Capital

International Finance

Filters