Question 1

Stockholders of acquired firms in mergers tend to be more concerned with future earnings and dividends exchanged than with the market value exchanged.

Accepted Answer

A) True 
 B)False

Question 2

Synergy is said to occur when the whole is

Accepted Answer

A)  equal to the sum of the parts. 
B)  less than the sum of the parts. 
C)  greater than the sum of the parts. 
D)  greater than or equal to the sum of the parts. 
A)  equal to the sum of the parts. 
B)  less than the sum of the parts. 
C)  greater than the sum of the parts. 
D)  greater than or equal to the sum of the parts.

Question 3

White knights

Accepted Answer

A)  advise companies on ways to avoid being taken over. 
B)  offer a higher purchase price and "friendlier offer" in the event of an unsolicited and unfriendly takeover attempt. 
C)  attempt to make money in the stock market on stocks that are likely merger candidates. 
D)  buy depressed stock of quality companies when merger talks are discontinued. 
A)  advise companies on ways to avoid being taken over. 
B)  offer a higher purchase price and "friendlier offer" in the event of an unsolicited and unfriendly takeover attempt. 
C)  attempt to make money in the stock market on stocks that are likely merger candidates. 
D)  buy depressed stock of quality companies when merger talks are discontinued.

Question 4

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

Accepted Answer

A) True 
 B)False

Question 5

By using cash instead of stock, a company may diminish the perceived dilutive effects of a merger.

Accepted Answer

A) True 
 B)False

Question 6

Synergy is said to take place when the merged companies are greater than the individual companies working separately.

Accepted Answer

A) True 
 B)False

Question 7

The 2017 Tax Cuts and Jobs Act has put US companies on the same footing as foreign competitors and eliminates the need for inversions, meaning US companies no longer need to keep foreign earnings abroad to avoid paying US taxes when they bring the cash back to the US.

Accepted Answer

A) True 
 B)False

Question 8

An example of horizontal integration is if Macy's and JC Penney were to merge.

Accepted Answer

A) True 
 B)False

Question 9

If an acquiring firm's merger proposal was rejected by a target firm's management and board of directors, the acquiring firm could utilize a tender offer to gain control of the target firm.

Accepted Answer

A) True 
 B)False

Question 10

If the purchasing firm's price earnings ratio is greater than the acquired firm's price earnings, the surviving firm will automatically get an increase in earnings per share.

Accepted Answer

A) True 
 B)False

Question 11

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 12

The stock market's reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business, or if it seems to sharpen the company's focus.

Accepted Answer

A) True 
 B)False

Question 13

One motivation to merge is through tax savings.

Accepted Answer

A) True 
 B)False

Question 14

A motive for selling stockholders may be the bias against smaller companies.

Accepted Answer

A) True 
 B)False

Question 15

Antitrust policy can preclude the acquisition of a competitor.

Accepted Answer

A) True 
 B)False

Question 16

After a merger has been announced, subsequent cancellation generally causes the potential acquiree's stock to decline in value.

Accepted Answer

A) True 
 B)False

Question 17

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 18

It is possible to merge with a company so that the merger results in the same earnings per share but still lowers the new firm's cost of capital.

Accepted Answer

A) True 
 B)False

Question 19

Selling stockholders during a merger may receive a price well above current market or book value.

Accepted Answer

A) True 
 B)False

Question 20

Leveraged buyouts are restricted to "outside" tender offers.

Accepted Answer

A) True 
 B)False

Exam 20: External Growth Through Mergers

Stockholders of acquired firms in mergers tend to be more concerned with future earnings and dividends exchanged than with the market value exchanged.

Synergy is said to occur when the whole is

White knights

Synergy is the greatest and most easily measured nonfinancial benefit in a merger.

By using cash instead of stock, a company may diminish the perceived dilutive effects of a merger.

Synergy is said to take place when the merged companies are greater than the individual companies working separately.

The 2017 Tax Cuts and Jobs Act has put US companies on the same footing as foreign competitors and eliminates the need for inversions, meaning US companies no longer need to keep foreign earnings abroad to avoid paying US taxes when they bring the cash back to the US.

An example of horizontal integration is if Macy's and JC Penney were to merge.

If an acquiring firm's merger proposal was rejected by a target firm's management and board of directors, the acquiring firm could utilize a tender offer to gain control of the target firm.

If the purchasing firm's price earnings ratio is greater than the acquired firm's price earnings, the surviving firm will automatically get an increase in earnings per share.

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

The stock market's reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business, or if it seems to sharpen the company's focus.

One motivation to merge is through tax savings.

A motive for selling stockholders may be the bias against smaller companies.

Antitrust policy can preclude the acquisition of a competitor.

After a merger has been announced, subsequent cancellation generally causes the potential acquiree's stock to decline in value.

In regard to two-step buyouts,

It is possible to merge with a company so that the merger results in the same earnings per share but still lowers the new firm's cost of capital.

Selling stockholders during a merger may receive a price well above current market or book value.

Leveraged buyouts are restricted to "outside" tender offers.

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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