Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 facts provided, 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 3

Under a two-step buyout procedure

Accepted Answer

A)  shareholders receive a higher total price than if a single offer is made. 
B)  the second offer is at a higher price per share. 
C)  shareholders are encouraged to react quickly to the offer. 
D)  two of the options are correct. 
A)  shareholders receive a higher total price than if a single offer is made. 
B)  the second offer is at a higher price per share. 
C)  shareholders are encouraged to react quickly to the offer. 
D)  two of the options are correct.

Question 4

The rising ratio of divestitures to new acquisitions that 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 high risk 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 high risk investments.

Question 5

In a horizontal merger, the integration that occurs comes from acquiring companies that supply resources to the company's production process.

Accepted Answer

A) True 
 B)False

Question 6

The Celluloid Collar Corporation has $210,000 in tax loss carryforwards. The Bowstring Shirt Company, a firm in the 21% tax bracket, would be willing to pay (on a non-discounted basis) the sum of ________ for Celluloid Collar Corporation's carryforward alone.

Accepted Answer

A)  $108,000 
B)  $52,000 
C)  $44,100 
D)  $700,000 
A)  $108,000 
B)  $52,000 
C)  $44,100 
D)  $700,000

Question 7

A tax loss carryforward of $1,000,000 for company ZZZ is not usually worth $1,000,000 in today's dollars to a firm that might acquire company ZZZ.

Accepted Answer

A) True 
 B)False

Question 8

For mergers occurring after 2001, goodwill must be amortized and written off over 40 years or less.

Accepted Answer

A) True 
 B)False

Question 9

U.S. is different from other countries in regards to what is considered taxable income. If income is earned overseas, the company still has to pay tax to the U.S. government regardless if the income has already been charged tax in another country.

Accepted Answer

A) True 
 B)False

Question 10

Nonfinancial motives for mergers include

Accepted Answer

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

Question 11

The direct financial motives for merger activity include all of the following EXCEPT:

Accepted Answer

A)  The portfolio effect 
B)  An improved financial posture and greater debt 
C)  The utilization of tax loss carryforwards 
D)  Vertical integration 
A)  The portfolio effect 
B)  An improved financial posture and greater debt 
C)  The utilization of tax loss carryforwards 
D)  Vertical integration

Question 12

A "takeover tender offer" lets a company attempt to acquire a target firm against its will.

Accepted Answer

A) True 
 B)False

Question 13

Vertical integration usually represents acquisition of a competitor.

Accepted Answer

A) True 
 B)False

Question 14

One of the reasons that companies merge with other companies is to secure access to a competing industry.

Accepted Answer

A) True 
 B)False

Question 15

The Prada 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, Prada Corp. would have to offer $45 per share for Stone's stock. Currently, Prada Corp. stock is selling for $25. How many shares of Prada Corp. stock would have to be exchanged to acquire all of Stone Company's stock?

Accepted Answer

A)  266,667 
B)  600,000 
C)  900,000 
D)  20,000 
A)  266,667 
B)  600,000 
C)  900,000 
D)  20,000

Question 16

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 17

Mergers often improve the financing flexibility that a larger company has available.

Accepted Answer

A) True 
 B)False

Question 18

The earnings-per-share impact of a merger is influenced by relative price-earnings ratios and the terms of exchange.

Accepted Answer

A) True 
 B)False

Question 19

Under the Financial Accounting Standards Board's SFAS 141 and 142, which of the following occurred?

Accepted Answer

A)  Goodwill is now amortized. 
B)  At least four times per year, goodwill must be tested to determine if it is impaired. 
C)  It allowed a one-time write-down of all past goodwill impairment. 
D)  It created pooling of interests accounting. 
A)  Goodwill is now amortized. 
B)  At least four times per year, goodwill must be tested to determine if it is impaired. 
C)  It allowed a one-time write-down of all past goodwill impairment. 
D)  It created pooling of interests accounting.

Question 20

Horizontal integration is usually prohibited or severely restricted by government antitrust regulations.

Accepted Answer

A) True 
 B)False

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

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 facts provided, Aardvark should

Under a two-step buyout procedure

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

In a horizontal merger, the integration that occurs comes from acquiring companies that supply resources to the company's production process.

The Celluloid Collar Corporation has $210,000 in tax loss carryforwards. The Bowstring Shirt Company, a firm in the 21% tax bracket, would be willing to pay (on a non-discounted basis) the sum of ________ for Celluloid Collar Corporation's carryforward alone.

A tax loss carryforward of $1,000,000 for company ZZZ is not usually worth $1,000,000 in today's dollars to a firm that might acquire company ZZZ.

For mergers occurring after 2001, goodwill must be amortized and written off over 40 years or less.

U.S. is different from other countries in regards to what is considered taxable income. If income is earned overseas, the company still has to pay tax to the U.S. government regardless if the income has already been charged tax in another country.

Nonfinancial motives for mergers include

The direct financial motives for merger activity include all of the following EXCEPT:

A "takeover tender offer" lets a company attempt to acquire a target firm against its will.

Vertical integration usually represents acquisition of a competitor.

One of the reasons that companies merge with other companies is to secure access to a competing industry.

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.

Mergers often improve the financing flexibility that a larger company has available.

The earnings-per-share impact of a merger is influenced by relative price-earnings ratios and the terms of exchange.

Under the Financial Accounting Standards Board's SFAS 141 and 142, which of the following occurred?

Horizontal integration is usually prohibited or severely restricted by government antitrust regulations.

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

Filters

Exam 20: External Growth Through Mergers

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

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 facts provided, Aardvark should

Under a two-step buyout procedure

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

In a horizontal merger, the integration that occurs comes from acquiring companies that supply resources to the company's production process.

The Celluloid Collar Corporation has $210,000 in tax loss carryforwards. The Bowstring Shirt Company, a firm in the 21% tax bracket, would be willing to pay (on a non-discounted basis) the sum of ________ for Celluloid Collar Corporation's carryforward alone.

A tax loss carryforward of $1,000,000 for company ZZZ is not usually worth $1,000,000 in today's dollars to a firm that might acquire company ZZZ.

For mergers occurring after 2001, goodwill must be amortized and written off over 40 years or less.

U.S. is different from other countries in regards to what is considered taxable income. If income is earned overseas, the company still has to pay tax to the U.S. government regardless if the income has already been charged tax in another country.

Nonfinancial motives for mergers include

The direct financial motives for merger activity include all of the following EXCEPT:

A "takeover tender offer" lets a company attempt to acquire a target firm against its will.

Vertical integration usually represents acquisition of a competitor.

One of the reasons that companies merge with other companies is to secure access to a competing industry.

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.

Mergers often improve the financing flexibility that a larger company has available.

The earnings-per-share impact of a merger is influenced by relative price-earnings ratios and the terms of exchange.

Under the Financial Accounting Standards Board's SFAS 141 and 142, which of the following occurred?

Horizontal integration is usually prohibited or severely restricted by government antitrust regulations.

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

Filters