Question 1

Which of the following types of mergers decreases competition?

Accepted Answer

A)  A horizontal merger 
B)  A vertical merger 
C)  A cash purchase 
D)  A stock-for-stock exchange 
A)  A horizontal merger 
B)  A vertical merger 
C)  A cash purchase 
D)  A stock-for-stock exchange A

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

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. C

Question 4

Which of the following types of mergers goes against the antitrust policy?

Accepted Answer

A)  A horizontal merger 
B)  A vertical merger 
C)  A cash purchase 
D)  A stock-for-stock exchange 
A)  A horizontal merger 
B)  A vertical merger 
C)  A cash purchase 
D)  A stock-for-stock exchange

Question 5

Multinational mergers provide economic and political diversification, which can lead to a higher cost of capital for the new firm.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is NOT a financial motive, but rather an operating motive for mergers and consolidations?

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 7

Which of the following is NOT a motive for stockholders of the acquired company to sell?

Accepted Answer

A)  The opportunity to diversify 
B)  Gaining a tax advantage 
C)  An attractive price 
D)  Avoiding bias against smaller businesses 
A)  The opportunity to diversify 
B)  Gaining a tax advantage 
C)  An attractive price 
D)  Avoiding bias against smaller businesses

Question 8

Selling stockholders who are offered cash or another company's stock in a merger may be willing to part with the shares because

Accepted Answer

A)  the offered shares may be more marketable. 
B)  the price they are offered may be above market value. 
C)  they can attain a greater degree of diversification as a result. 
D)  all of these options are true. 
A)  the offered shares may be more marketable. 
B)  the price they are offered may be above market value. 
C)  they can attain a greater degree of diversification as a result. 
D)  all of these options are true.

Question 9

A cash purchase of one company by another is similar to a capital budgeting decision.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The typical merger premium is ________.

Accepted Answer

A)  0-20% 
B)  40% 
C)  40-60% 
D)  80-100% 
A)  0-20% 
B)  40% 
C)  40-60% 
D)  80-100%

Question 12

Which of the following terms is not specifically related to an unfriendly buyout?

Accepted Answer

A)  Takeover tender offer 
B)  White knight 
C)  Saturday night special 
D)  Synergy 
A)  Takeover tender offer 
B)  White knight 
C)  Saturday night special 
D)  Synergy

Question 13

Which of the following is NOT a potential challenge to a merger?

Accepted Answer

A)  Anti-trust laws 
B)  Dilution 
C)  Firm valuation 
D)  Synergy 
A)  Anti-trust laws 
B)  Dilution 
C)  Firm valuation 
D)  Synergy

Question 14

The portfolio effect in a merger has to do with

Accepted Answer

A)  increasing EPS. 
B)  reducing risk. 
C)  creating tax advantages. 
D)  writing off goodwill. 
A)  increasing EPS. 
B)  reducing risk. 
C)  creating tax advantages. 
D)  writing off goodwill.

Question 15

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 16

The two-step buyout is a recent merger ploy that has which of the following characteristics?

Accepted Answer

A)  It is negotiated in a social, rather than a business setting. 
B)  The acquiring firm offers to pay a very high price for the target company's stock, and a short time later announces another price that may be higher or lower. 
C)  The acquiring firm offers to pay a very high price for the target company's stock for a limited time only, after which it will pay a lower price. 
D)  It forces stockholders to sell out. 
A)  It is negotiated in a social, rather than a business setting. 
B)  The acquiring firm offers to pay a very high price for the target company's stock, and a short time later announces another price that may be higher or lower. 
C)  The acquiring firm offers to pay a very high price for the target company's stock for a limited time only, after which it will pay a lower price. 
D)  It forces stockholders to sell out.

Question 17

Synergy is

Accepted Answer

A)  the 2 + 2 = 3 effect. 
B)  the 2 + 2 = 4 effect. 
C)  the 2 + 2 = 5 effect. 
D)  always present in a merger. 
A)  the 2 + 2 = 3 effect. 
B)  the 2 + 2 = 4 effect. 
C)  the 2 + 2 = 5 effect. 
D)  always present in a merger.

Question 18

Which of the following is NOT a method of avoiding a takeover?

Accepted Answer

A)  Increasing the firm's cash level 
B)  Moving corporate offices to advantageous states 
C)  Staggering the election of boards of directors 
D)  Buying back shares 
A)  Increasing the firm's cash level 
B)  Moving corporate offices to advantageous states 
C)  Staggering the election of boards of directors 
D)  Buying back shares

Question 19

In planning mergers, there is a tendency to ________ synergistic benefits.

Accepted Answer

A)  overestimate 
B)  underestimate 
C)  correctly estimate 
D)  not estimate 
A)  overestimate 
B)  underestimate 
C)  correctly estimate 
D)  not estimate

Question 20

Synergy effect is said to happen when the merged companies are able to work together and eliminate some of the repeated divisional tasks, proving that the company is better off being merged.

Accepted Answer

A) True 
 B)False

Exam 20: External Growth Through Mergers

Which of the following types of mergers decreases competition?

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

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 types of mergers goes against the antitrust policy?

Multinational mergers provide economic and political diversification, which can lead to a higher cost of capital for the new firm.

Which of the following is NOT a financial motive, but rather an operating motive for mergers and consolidations?

Which of the following is NOT a motive for stockholders of the acquired company to sell?

Selling stockholders who are offered cash or another company's stock in a merger may be willing to part with the shares because

A cash purchase of one company by another is similar to a capital budgeting decision.

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

The typical merger premium is ________.

Which of the following terms is not specifically related to an unfriendly buyout?

Which of the following is NOT a potential challenge to a merger?

The portfolio effect in a merger has to do with

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

The two-step buyout is a recent merger ploy that has which of the following characteristics?

Synergy is

Which of the following is NOT a method of avoiding a takeover?

In planning mergers, there is a tendency to ________ synergistic benefits.

Synergy effect is said to happen when the merged companies are able to work together and eliminate some of the repeated divisional tasks, proving that the company is better off being merged.

The Goals and Activities 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

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