Question 1

Which of the following is not a financial motive but rather an operating motive for merger and consolidation?

Accepted Answer

A)  The portfolio diversification effect 
B)  Tax-loss carryforward 
C)  Greater financing capability 
D)  Synergy 
A)  The portfolio diversification effect 
B)  Tax-loss carryforward 
C)  Greater financing capability 
D)  Synergy

Question 2

One potential advantage of a merger to the acquiring firm is the Portfolio Effect which attempts to achieve risk reduction while perhaps maintaining the rate of return for the firm.

Accepted Answer

A) True 
 B)False

Question 3

The portfolio effect of a merger is greatest for the selling stockholders.

Accepted Answer

A) True 
 B)False

Question 4

An example of a horizontal merger would be

Accepted Answer

A)  Pepsi and Sears. 
B)  McDonalds and Pillsbury. 
C)  Pepsi and Frito Lay. 
D)  Coca Cola and Dr. Pepper. 
A)  Pepsi and Sears. 
B)  McDonalds and Pillsbury. 
C)  Pepsi and Frito Lay. 
D)  Coca Cola and Dr. Pepper.

Question 5

Most mergers are horizontal in nature in order to avoid the potential antitrust complications involved with the elimination of competition.

Accepted Answer

A) True 
 B)False

Question 6

Although corporate managers have a responsibility to act in shareholders' best interest, management frequently opposes acquisitions due to personal motives.

Accepted Answer

A) True 
 B)False

Question 7

The rising ratio of divestitures to new acquisitions which occurred in the past suggests that

Accepted Answer

A)  poison pills are no longer effective as a defense against takeovers. 
B)  too much diversification strained the operating capabilities of many firms. 
C)  the portfolio effect has been a highly successful method of reducing risk. 
D)  multinational firms are increasingly considered highly risky investments. 
A)  poison pills are no longer effective as a defense against takeovers. 
B)  too much diversification strained the operating capabilities of many firms. 
C)  the portfolio effect has been a highly successful method of reducing risk. 
D)  multinational firms are increasingly considered highly risky investments.

Question 8

The potential of a tax loss carryforward has no effect when considering the acquisition of a company.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not a form of compensation that selling stockholders could receive?

Accepted Answer

A)  Stock 
B)  Cash 
C)  Stock Options 
D)  Fixed Income Securities 
A)  Stock 
B)  Cash 
C)  Stock Options 
D)  Fixed Income Securities

Question 10

In regard to two step buyouts,

Accepted Answer

A)  the SEC highly approves of them. 
B)  the FTC highly approves of them. 
C)  the SEC is keeping a close eye on them. 
D)  the FTC is keeping a close eye on them. 
A)  the SEC highly approves of them. 
B)  the FTC highly approves of them. 
C)  the SEC is keeping a close eye on them. 
D)  the FTC is keeping a close eye on them.

Question 11

Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

Accepted Answer

A) True 
 B)False

Question 12

Leveraged Takeovers occur to firms that have an unusually large cash/total assets position.

Accepted Answer

A) True 
 B)False

Question 13

The elimination of overlapping functions and the meshing of two firms' strong areas or products creates the managerial incentive for mergers known as

Accepted Answer

A)  horizontal integration. 
B)  vertical integration. 
C)  synergy. 
D)  the portfolio effect. 
A)  horizontal integration. 
B)  vertical integration. 
C)  synergy. 
D)  the portfolio effect.

Question 14

Which of the following is not a potential benefit of a merger?

Accepted Answer

A)  Improved Financing Posture 
B)  Portfolio Effect 
C)  Dilution of Earnings Per Share 
D)  Tax Loss Carryforward 
A)  Improved Financing Posture 
B)  Portfolio Effect 
C)  Dilution of Earnings Per Share 
D)  Tax Loss Carryforward

Question 15

"Poison pills" are strategies which reduce the value of a firm if it is taken over by a corporate raider.

Accepted Answer

A) True 
 B)False

Question 16

Match between columns
                        Premises: The recognition that the whole may be equal to more than the sum of the parts.
The combination of two or more firms to form an entirely new entity.
The concept of maximizing the wealth of the stockholders.
A surprise offer made just before the market closes for the weekend and takes the target company's officers by surprise.
Value paid over the existing price of the acquired firm.
A loss that can be extended for a number of years to offset taxable income.
A merger price offer that takes place in two stages.
The buy-out ratio or terms of trade in a merger or an acquisition.
A third firm that management calls on to avoid the initial unfriendly takeover.
The combination of two or more firms in which one firm acquires the others, causing them to lose their identity.
The impact of a given investment on the overall risk-return composition of the firm.

Accepted Answer

The Answer of Saturday night special and synergy and portfolio is...

Question 17

In a merger, two or more companies are combined to form an entirely new entity.

Accepted Answer

A) True 
 B)False

Question 18

Aardvark Software, Inc. can purchase all the stock of Zebra Computer Services for $1,200,000 in cash. Zebra is expected to generate net after-tax cash flows of $100,000 per year for each of the next 12 years. Based solely on the cash flow analysis, Aardvark should

Accepted Answer

A)  not purchase Zebra Computer Services. 
B)  purchase Zebra Computer Services. 
C)  purchase Zebra only if Aardvark's cost of capital is between 5% and 10%. 
D)  purchase Zebra only if Aardvark's cost of capital is above 10%. 
A)  not purchase Zebra Computer Services. 
B)  purchase Zebra Computer Services. 
C)  purchase Zebra only if Aardvark's cost of capital is between 5% and 10%. 
D)  purchase Zebra only if Aardvark's cost of capital is above 10%.

Question 19

Too much diversification has led many companies to sell off companies previously acquired during the merger boom.

Accepted Answer

A) True 
 B)False

Question 20

The Prad Corporation is considering a merger with the Stone Company which has 500,000 outstanding shares selling for $30. An investment banker has advised that to succeed in its merger Prad Corp. would have to offer $45 per share for Stone's stock. Prad Corp. stock is selling for $25. How many shares of Prad Corp. stock would have to be exchanged to acquire all of Stone's stock?

Accepted Answer

A)  266,667 
B)  600,000 
C)  900,000 
D)  none of these 
A)  266,667 
B)  600,000 
C)  900,000 
D)  none of these

Which of the following is not a financial motive but rather an operating motive for merger and consolidation?

One potential advantage of a merger to the acquiring firm is the Portfolio Effect which attempts to achieve risk reduction while perhaps maintaining the rate of return for the firm.

The portfolio effect of a merger is greatest for the selling stockholders.

An example of a horizontal merger would be

Most mergers are horizontal in nature in order to avoid the potential antitrust complications involved with the elimination of competition.

Although corporate managers have a responsibility to act in shareholders' best interest, management frequently opposes acquisitions due to personal motives.

The rising ratio of divestitures to new acquisitions which occurred in the past suggests that

The potential of a tax loss carryforward has no effect when considering the acquisition of a company.

Which of the following is not a form of compensation that selling stockholders could receive?

In regard to two step buyouts,

Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

Leveraged Takeovers occur to firms that have an unusually large cash/total assets position.

The elimination of overlapping functions and the meshing of two firms' strong areas or products creates the managerial incentive for mergers known as

Which of the following is not a potential benefit of a merger?

"Poison pills" are strategies which reduce the value of a firm if it is taken over by a corporate raider.

In a merger, two or more companies are combined to form an entirely new entity.

Aardvark Software, Inc. can purchase all the stock of Zebra Computer Services for $1,200,000 in cash. Zebra is expected to generate net after-tax cash flows of $100,000 per year for each of the next 12 years. Based solely on the cash flow analysis, Aardvark should

Too much diversification has led many companies to sell off companies previously acquired during the merger boom.

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants, and Derivatives

International Financial Management

Filters

Exam 20: External Growth Through Mergers

Which of the following is not a financial motive but rather an operating motive for merger and consolidation?

One potential advantage of a merger to the acquiring firm is the Portfolio Effect which attempts to achieve risk reduction while perhaps maintaining the rate of return for the firm.

The portfolio effect of a merger is greatest for the selling stockholders.

An example of a horizontal merger would be

Most mergers are horizontal in nature in order to avoid the potential antitrust complications involved with the elimination of competition.

Although corporate managers have a responsibility to act in shareholders' best interest, management frequently opposes acquisitions due to personal motives.

The rising ratio of divestitures to new acquisitions which occurred in the past suggests that

The potential of a tax loss carryforward has no effect when considering the acquisition of a company.

Which of the following is not a form of compensation that selling stockholders could receive?

In regard to two step buyouts,

Following a merger, the change in the risk profile of the merged companies may influence the P/E ratio as much as the change in the overall growth rate.

Leveraged Takeovers occur to firms that have an unusually large cash/total assets position.

The elimination of overlapping functions and the meshing of two firms' strong areas or products creates the managerial incentive for mergers known as

Which of the following is not a potential benefit of a merger?

"Poison pills" are strategies which reduce the value of a firm if it is taken over by a corporate raider.

In a merger, two or more companies are combined to form an entirely new entity.

Aardvark Software, Inc. can purchase all the stock of Zebra Computer Services for $1,200,000 in cash. Zebra is expected to generate net after-tax cash flows of $100,000 per year for each of the next 12 years. Based solely on the cash flow analysis, Aardvark should

Too much diversification has led many companies to sell off companies previously acquired during the merger boom.

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants, and Derivatives

International Financial Management

Filters