Deck 26: Mergers and Acquisitions

Question 1

Which one of these statements is false?

A) Acquisitions are sometimes unfriendly.
B) Shareholders of the target firm must vote to approve an acquisition by stock.
C) The cost of a stock acquisition can be higher than the cost of a merger if the target firm's management resists.
D) The complete absorption of one firm by another requires a merger.
E) In stock acquisitions the bidding firm deals directly with the target firm's shareholders.

Answer 1

Shareholders of the target firm must vote to approve an acquisition by stock.

Question 2

The current officers of MTC have decided to form a private investment group for the sole purpose of purchasing MTC. These individuals will borrow 90 percent of their offer price. The purchase of this firm is referred to as a:

A) conglomeration.
B) proxy contest.
C) merger.
D) management buyout.
E) consolidation.

Answer 2

management buyout.

Question 3

Which one of the following statements correctly applies to a legally defined merger?

A) The acquiring firm retains its identity and absorbs only the assets of the acquired firm.
B) The acquired firm is completely absorbed and ceases to exist as a separate legal entity.
C) A new firm is created that includes all the assets and liabilities of the acquiring firm plus the assets only of the acquired firm.
D) A new firm is created from the assets and liabilities of both the acquiring and acquired firms.
E) A merger reclassifies the acquired firm into a new entity that becomes a subsidiary of the acquiring firm.

Answer 3

The acquired firm is completely absorbed and ceases to exist as a separate legal entity.

Question 4

Biltwell Hotels is acquiring all of the assets of Green Roof Inns. As a result, Green Roof Inns:

A) will become a fully owned subsidiary of Biltwell Hotels.
B) will remain as a shell corporation unless the shareholders opt to dissolve it.
C) will be fully merged into Biltwell Hotels and will no longer exist as a separate entity.
D) and Biltwell Hotels will both cease to exist and a new firm will be formed.
E) will automatically be dissolved.

Question 5

All of the following are related to a takeover except a:

A) tender offer.
B) consolidation.
C) going private transaction.
D) proxy contest.
E) strategic alliance.

Question 6

Which one of the following is a disadvantage of a merger?

A) Transferring the title to all the target firm's assets
B) Disbanding the operations of the target firm
C) Hiring an underwriter to distribute the IPO shares
D) Incurring the costs of creating a new legal entity
E) Seeking approval of the shareholders of both firms

Question 7

If Food Markets were to acquire Meat Processors, the acquisition would be classified as a ________ acquisition.

A) vertical
B) longitudinal
C) conglomerate
D) horizontal
E) integrated

Question 8

Last month, Keyser Design acquired all of the assets and liabilities of Tenor Machine Works. The combined firm is known as Keyser Design. Tenor Machine Works no longer exists as a separate entity. This acquisition is best described as a:

A) merger.
B) consolidation.
C) tender offer.
D) spinoff.
E) divestiture.

Question 9

KN Markets has decided to acquire a controlling interest in BJ's by purchasing shares of BJ stock in the public markets. Which one of these statements correctly applies to this acquisition?

A) This method of acquisition guarantees a quick and efficient merger.
B) KN Markets is limited by law to obtaining a maximum of 49 percent of the shares prior to obtaining the approval of BJ management.
C) The purchase of publicly traded shares may be more expensive than an outright merger.
D) Once KN Markets obtains 80 percent of BJ's shares, the remaining BJ shareholders will be required to sell their shares to KN.
E) KN Markets must obtain the approval of BJ's board of directors before purchasing shares.

Question 10

In a merger the:

A) legal status of both the acquiring firm and the target firm is terminated.
B) acquiring firm retains its pre-merger legal status.
C) acquiring firm acquires the assets, but not the liabilities, of the target firm.
D) shareholders of the target firm have little, if any, say as to whether or not the merger occurs.
E) target firm continues to exist but will be a wholly owned subsidiary of the acquiring firm.

Question 11

Dixie and ten of her wealthy friends formed a group and borrowed the funds necessary to acquire all of the outstanding shares of Southern Fried Chicken. This transaction is known as a:

A) proxy contest.
B) management buyout.
C) vertical acquisition.
D) leveraged buyout.
E) unfriendly takeover.

Question 12

Diet Soda and High Caffeine are two firms that compete in the soft drink market. These two competitors have decided to invest $10 million to form a new company, Fruit Tea, which will manufacture flavored teas. This new firm is defined as a:

A) consolidation.
B) strategic alliance.
C) joint venture.
D) merged alliance.
E) takeover project.

Question 13

Firms A and B formally agree to each put up $25 million to create firm C. Firm C will perform environmental testing on the products produced by both Firm A and Firm B. Which one of the following terms describes Firm C?

A) Joint venture
B) Going-private transaction
C) Conglomerate
D) Subsidiary
E) Leveraged buyout

Question 14

Which one of the following statements correctly applies to a merger?

A) The acquiring firm does not have to seek approval for the merger from its shareholders.
B) The shareholders of the target firm must approve the merger.
C) The acquiring firm will acquire the assets but not the debt of the target firm.
D) The merged firm will have a new company name.
E) The titles to individual assets of the target firm must be transferred into the acquiring firm's name.

Question 15

A group of individual investors is in the process of acquiring all of the publicly traded shares of OM Outfitters. Once the shares are acquired, they will no longer be publicly traded. Which of the following terms applies to this process?

A) Tender offer
B) Proxy contest
C) Going-private transaction
D) Merger
E) Consolidation

Question 16

An automaker recently acquired a windshield manufacturer. Which type of an acquisition was this?

A) Horizontal
B) Longitudinal
C) Conglomerate
D) Vertical
E) Indirect

Question 17

The Daily News published an ad today wherein it announced its desire to purchase shares of a competing newspaper, the Oil Town Gossip. Which one of the following terms is best described by this announcement?

A) Merger request
B) Consolidation
C) Tender offer
D) Spinoff
E) Divestiture

Question 18

If GE, a highly diversified company, were to acquire Ocean Freight Limited, the acquisition would be classified as a ________ acquisition.

A) horizontal
B) longitudinal
C) conglomerate
D) vertical
E) integrated

Question 19

Johnson Co. and Peabody Enterprises are both manufacturers of plastic products. These two firms have decided to work together to find a more efficient way to recycle rejected products. Thus, the two companies are each going to assign two engineers to this project and have agreed to share any and all costs. This project is an example of a:

A) consolidation.
B) merged alliance.
C) joint venture.
D) takeover project.
E) strategic alliance.

Question 20

The Cat Box acquired The Dog House. As part of this transaction, both firms ceased to exist in their prior form and combined to create an all-new entity, Animal World. Which one of the following terms best describes this transaction?

A) Divestiture
B) Consolidation
C) Tender offer
D) Spinoff
E) Conglomeration

Question 21

Assume the shareholders of a target firm benefit from being acquired in a stock transaction. Given this, these shareholders are most apt to realize the largest benefit if the:

A) acquiring firm has the better management team and replaces the target firm's managers.
B) management of the target firm is more efficient than the management of the acquiring firm which replaces them.
C) management of both the acquiring firm and the target firm are as equivalent as possible.
D) current management team of the target firm is kept in place even though the managers of the acquiring firm are more suited to manage the target firm's situation.
E) new management team is technologically knowledgeable but yet ineffective.

Question 22

Which one of the following best defines synergy given the following? VA = Value of Firm A
VB = Value of Firm B
VAB = Value of merged Firm AB

A) (VA + VB) − VAB
B) VAB − (VA + VB)
C) Max[(VA + VB) − VAB, 0]
D) Max[VAB − (VA + VB, 0]
E) Max[VAB − VB, 0]

Question 23

For financial statement purposes, goodwill created by an acquisition:

A) must be amortized on a straight-line basis over 10 years.
B) must be reviewed each year and amortized to the extent that it has lost value.
C) is expensed evenly over a 20-year period.
D) never affects the profits of the acquiring firm.
E) is recorded in an amount equal to the fair market value of the assets of the target firm.

Question 24

If an acquisition does not create value and the market is smart, then the:

A) earnings per share of the acquiring firm must be the same both before and after the acquisition.
B) earnings per share can change but the stock price of the acquiring firm should remain constant.
C) price per share of the acquiring firm should increase because of the growth of the firm.
D) earnings per share will most likely increase while the price-earnings ratio remains constant.
E) price-earnings ratio should remain constant regardless of any changes in the earnings per share.

Question 25

Which one of the following statements is correct?

A) The shareholders of an acquired firm are generally given a choice of accepting either cash or shares of stock when the acquisition is tax free.
B) To be a tax-free acquisition, the shareholders of an acquired firm must receive shares in the acquiring firm that are equal to 25 percent or less of the value of the shares held in the acquired firm.
C) The assets of an acquired firm are recorded on the books of the acquiring firm at their current book value regardless of the tax status of the acquisition.
D) Target firm shareholders demand a higher selling price when an acquisition is a nontaxable event.
E) If the assets of a firm are written up as part of the acquisition process, the increase in value is considered to be a taxable gain.

Question 26

All of the following represent potential tax benefits that can directly result from an acquisition except:

A) increasing the depreciation expense.
B) using tax losses.
C) increasing surplus funds.
D) increasing the use of leverage.
E) increasing interest expense.

Question 27

Which one of the following does not represent a potential tax gain from an acquisition?

A) The use of surplus funds
B) The use of tax loss carryforwards
C) The write-up of depreciable assets
D) The use of unused debt capacity
E) The increase in taxable income

Question 28

A proposed acquisition is most apt to create synergy by:

A) decreasing the market power of the combined firm.
B) disbanding the distribution network of the combined firm.
C) eliminating any strategic advantages of the target firm.
D) increasing the utilization of the acquiring firm's assets.
E) increasing the overhead costs.

Question 29

If a merger creates synergy, then the:

A) merger is classified as a taxable transaction.
B) acquiring firm's shareholders will receive a one-time cash payment.
C) equity of the target firm will be increased by the amount of the synergy.
D) value of the merged firm exceeds the combined value of the separate firms.
E) price paid by the acquiring firm will be reduced by the amount of that synergy.

Question 30

The purchase accounting method requires that:

A) the excess of the purchase price over the fair market value of the target firm be recorded as a one-time expense on the income statement of the acquiring firm.
B) goodwill be amortized on a yearly basis for financial statement purposes.
C) the equity of the acquiring firm be reduced by the excess of the purchase price over the fair market value of the target firm.
D) the assets of the target firm be recorded at their fair market value on the balance sheet of the acquiring firm.
E) the excess amount paid for the target firm be recorded as a tangible asset on the books of the acquiring firm.

Question 31

In a tax-free acquisition, the shareholders of the target firm:

A) receive income that is considered to be tax-exempt.
B) gift their shares to a tax-exempt organization and therefore have no taxable gain.
C) are viewed as having exchanged shares on a dollar-for-dollar basis.
D) sell their shares to a qualifying entity thereby avoiding both income and capital gains taxes.
E) sell their shares at cost thereby avoiding the capital gains tax.

Question 32

All of the following represent potential gains from an acquisition except the:

A) tax loss carryforwards acquired in the acquisition.
B) lower costs per unit realized.
C) diseconomies of scale related to increased labor demand.
D) use of surplus funds.
E) obtainment of a beachhead.

Question 33

A potential merger that produces synergy:

A) should be rejected due to the projected negative cash flows.
B) should be rejected because the synergy will dilute the benefits of the merger.
C) has a net present value of zero.
D) creates value and therefore should be pursued.
E) reduces the anticipated net income from the target firm.

Question 34

Which one of the following is not required for an acquisition to be considered tax-free?

A) The continuity of equity interest
B) A business purpose, other than avoiding taxes, for the acquisition
C) The obtainment of equity shares in the acquirer by the target firm's shareholders
D) A cash payment to the target firm's shareholders
E) An exchange that is considered to be of equal value

Question 35

The value of a target firm to the acquiring firm is equal to the:

A) value of the target firm as a separate entity plus the incremental value derived from the acquisition.
B) purchase cost of the target firm.
C) value of the merged firm minus the value of the target firm as a separate entity.
D) purchase cost plus the incremental value derived from the acquisition.
E) incremental value derived from the acquisition.

Question 36

Which one of the following statements is correct?

A) The IRS automatically approves acquisitions that are primarily designed to lower federal taxes.
B) The leverage associated with an acquisition increases the tax liability of the acquiring firm.
C) A firm may benefit from an acquisition if it can lower its capital requirements.
D) Firms can always benefit from economies of scale if they increase the size of their firm through acquisitions.
E) If a firm uses its surplus cash to acquire another firm, then the shareholders of the acquiring firm immediately incur a tax liability related to the transaction.

Question 37

All of the following are examples of cost reductions that can result from an acquisition except:

A) reducing the number of management personnel required.
B) lowering office costs by combining job functions.
C) allocating fixed overhead across a wider range of products.
D) benefiting from economies of scale when purchasing raw materials.
E) increasing the firm's market share.

Question 38

Black Teas recently acquired Green Teas in a transaction that had a net present value of $1.23 million. The $1.23 million is referred to as:

A) the agency effect.
B) the consolidating value.
C) the diversification benefit.
D) the consolidation effect.
E) synergy.

Question 39

Which one of the following pairs of businesses could probably benefit the most by sharing complementary resources?

A) Roofer and architect
B) Tennis court and pharmacy
C) Ski resort and golf course
D) Dry cleaner and insurance office
E) Trucking company and lawn service

Question 40

When evaluating an acquisition you should:

A) concentrate on book values and ignore market values.
B) focus on the total cash flows of the merged firm but ignore incremental cash flows.
C) apply the rate of return that is relevant to the incremental cash flows.
D) ignore any one-time acquisition fees or transaction costs.
E) ignore any potential changes in management.

Question 41

The balance sheet of MT Co. shows current assets of $14,000, net fixed assets of $21,800, current liabilities of $4,300, long-term debt of $2,600, and equity of $28,900. The balance sheet of LF Inc. has current assets of $4,700, net fixed assets of $8,100, current liabilities of $2,200, long-term debt of $1,200, and equity of $9,400. The market value of LF's fixed assets is $14,100. MT purchases LF for $20,000 and raises the funds through an issue of long-term debt. What will be the value of the equity account on the post- merger balance sheet assuming the purchase accounting method is used?

A) $29,600
B) $33,600
C) $28,900
D) $39,600
E) $43,000

Question 42

Firm X has total earnings of $49,000, a market value per share of $64, a book value per share of $38, and has 25,000 shares outstanding. Firm Y has total earnings of $34,000, a market value per share of $21, a book value per share of $12, and has 22,000 shares outstanding. Assume Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $2 per share. Also assume neither firm has any debt before or after the merger. What is the value of the total equity of the combined firm, XY, if the purchase method of accounting is used?

A) $1,274,000
B) $1,316,000
C) $1,456,000
D) $1,412,000
E) $1,427,000

Question 43

Which one of the following generally has a flip-in provision that significantly increases the cost to a shareholder who is attempting to gain control over a firm?

A) Golden parachute
B) Standstill agreement
C) Greenmail
D) Poison pill
E) White knight

Question 44

An acquisition completed simply to diversify a firm will:

A) create excessive synergy in almost all situations.
B) lower systematic risk and increase the value of the firm.
C) benefit the firm by eliminating unsystematic risk.
D) benefit the shareholders by providing otherwise unobtainable diversification.
E) generally not add any value to the firm.

Question 45

Roger is a major shareholder in RB Industrial Supply. Currently, Roger is quite unhappy with the direction the firm is headed and is rumored to be considering an attempt to take over the firm by soliciting the votes of other shareholders. To head off this potential attempt, the board of RB Industrial Supply has decided to offer Roger $36 a share for all the shares he owns in the firm. The current market value per share is $32. This offer to purchase Roger's shares is commonly referred to as:

A) a golden parachute.
B) standstill payments.
C) greenmail.
D) a poison pill.
E) a white knight.

Question 46

Melvin was attempting to gain control of Western Wood Products until he realized that the existing shareholders in the firm had the right to purchase additional shares at a below-market price given his hostile takeover attempt. Thus, Melvin decided to forgo investing in this firm. What term applies to the tactic used by Western Wood Products to stave off this takeover attempt?

A) "Pac-man" defense
B) Bear hug
C) Golden parachute provision
D) Greenmail provision
E) Share rights plan

Question 47

Which one of the following statements is correct?

A) An equity carve-out frequently follows a spin-off.
B) A split-up frequently follows a spin-off.
C) An equity carve-out is a specific type of acquisition.
D) A spin-off involves an initial public offering.
E) Split-ups may unlock value within a firm.

Question 48

Which one of these statements is correct regarding acquisitions?

A) The cost of a cash acquisition to the acquiring firm is equal to the cash paid minus the taxes incurred by the target firm's shareholders.
B) Neither cash nor share acquisitions affect the control of the acquiring firm.
C) Share financing is generally more common than cash financing for smaller acquisitions.
D) Target firm shareholders share in both the gains and losses resulting from a stock acquisition.
E) Cash acquisitions create a tax liability for the acquiring firm's shareholders.

Question 49

Which one of these is the least probable reason why a firm may want to divest itself of some of its assets?

A) To cash out a profitable operation
B) To raise cash
C) To improve the strategic fit of its various divisions
D) To comply with antitrust regulations
E) To increase market share

Question 50

Global Distributors has decided to sell its manufacturing operations and concentrate solely on its global distribution operations. This sale is referred to as a(n):

A) liquidation.
B) divestiture.
C) merger.
D) allocation.
E) restructuring.

Question 51

Family Travel is the sole shareholder in its subsidiary, FT Insurance. Family Travel has decided to divest itself of its insurance operations and does so by distributing the shares in the subsidiary to the shareholders of Family Travel. This distribution of shares is called a(n):

A) lockup transaction.
B) bear hug.
C) equity carve-out.
D) spin-off.
E) split-up.

Question 52

The shareholders in the acquiring firm may not realize any significant gains from an acquisition. Which one of the following has not been suggested as a reason for this lack of gain?

A) Management may have priorities other than the interests of the stockholders.
B) The price paid for the target firm might equal the target firm's total value to the acquirer.
C) Any synergy produced was paid to the target firm's shareholders.
D) Target firm shares were exchanged for an equal value of acquiring firm shares.
E) Anticipated merger gains may not be fully achieved.

Question 53

Studies conducted on mergers and acquisitions have generally concluded that:

A) both acquiring and target firm's shareholders benefit approximately equally in most situations.
B) all involved shareholders tend to neither gain nor lose much as a result of these transactions.
C) only highly leveraged acquisitions produce any shareholder gains.
D) these transactions are financially beneficial to target shareholders.
E) acquiring firm's shareholders gain at the expense of the target firm's shareholders.

Question 54

Nationwide Markets is a diversified company with many divisions. It is also the sole shareholder of a wholly owned subsidiary. Management has decided to implement an IPO offering for 25 percent of the ownership of the subsidiary. Which one of these terms applies to this offering?

A) Split-up
B) Equity carve-out
C) Tender offer
D) White knight transaction
E) Lockup transaction

Question 55

The balance sheet of Meat Co. reflects current assets of $6,000, net fixed assets of $8,400, current liabilities of $1,800, long-term debt of $1,100, and equity of $11,500. The balance sheet of Loaf Inc. shows current assets of $2,000, net fixed assets of $3,300, current liabilities of $900, long-term debt of $500, and equity of $3,900. Suppose the fair market value of Loaf's fixed assets is $4,100 versus the $3,300 book value shown. Meat pays $5,200 for Loaf and raises the needed funds through an issue of long-term debt. Assume the purchase method of accounting is used. The post-merger balance sheet of Meat Co. will have total debt of ________ and total equity of ________.

A) $1,600; $11,500
B) $1,600; $15,400
C) $10,200; $15,400
D) $9,500; $11,500
E) $14,500; $15,400

Question 56

Which one of the following statements is correct?

A) An increase in the earnings per share as a result of an acquisition will increase the price per share of the acquiring firm.
B) The price-earnings ratio must remain constant as a result of an acquisition that fails to create value.
C) If firm A acquires firm B then the number of shares in AB will equal the number of shares of A plus the number of shares of B.
D) The price-earnings ratio can decrease even when the net present value of a merger is equal to zero.
E) Diversification is one of the greatest benefits derived from an acquisition.

Question 57

Davidson Global proposed splitting itself into four separate firms and its shareholders agreed. This split is referred to as a(n):

A) lockup transaction.
B) divestiture.
C) equity carve-out.
D) spin-off.
E) split-up.

Question 58

The primary purpose of a flip-in provision is to:

A) increase the number of shares outstanding while also increasing the value per share.
B) dilute a corporate raider's ownership position.
C) reduce the market value of each share of stock.
D) give the existing corporate directors the sole right to remove a poison pill.
E) provide additional compensation to any senior manager who loses his or her job as a result of a corporate takeover.

Question 59

Which one of the following defensive tactics is designed to prevent a "two-tier" takeover offer?

A) Bear hug
B) Poison put
C) Shark repellent
D) Dual class capitalization
E) Fair price provision

Question 60

If a firm sells its crown jewels when threatened with a takeover attempt, the firm is employing a strategy commonly referred to as a ________ strategy.

A) scorched earth
B) shark repellent
C) bear hug
D) white knight
E) lockup

Question 61

Outdoor Living has agreed to be acquired by New Adventures for $100,000 worth of New Adventures stock. New Adventures currently has 12,000 shares of stock outstanding at a price of $27 a share. Outdoor Living has 2,000 shares outstanding at a price of $46 a share. The incremental value of the acquisition is $12,000. What is the value of the merged firm?

A) $285,500
B) $328,000
C) $437,000
D) $320,500
E) $428,000

Question 62

Rosie's has 2,200 shares outstanding at a market price per share of $28.15. Sandy's has 4,500 shares outstanding at a market price of $38 a share. Neither firm has any debt. Sandy's is acquiring Rosie's. The incremental value of the acquisition is $1,800. What is the value of Rosie's to Sandy's?

A) $107,270
B) $48,770
C) $54,300
D) $68,700
E) $63,730

Question 63

The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation. Jolie has a price-earnings ratio of 6, earnings of $230,000, and 60,000 shares outstanding. Pitt has a price-earnings ratio of 12, earnings of $660,000, and 125,000 shares outstanding. Jolie's shareholders will receive one share of Pitt stock for every three shares they hold in Jolie. Assume the NPV of the acquisition is zero. What will the post-merger PE ratio be for Pitt?

A) 10.76
B) 9.20
C) 9.84
D) 10.32
E) 11.21

Question 64

TJ's and Corner Grocery are all-equity firms. TJ's has 2,500 shares outstanding at a market price of $16.70 a share. Corner Grocery has 3,000 shares outstanding at a price of $22.50 a share. Corner Grocery is acquiring TJ's for $45,000 in cash. What is the merger premium per share?

A) $0
B) $1.30
C) $1.11
D) $1.28
E) $.32

Question 65

Aardvark Enterprises has agreed to be acquired by Lawson Products in exchange for $30,000 worth of Lawson Products stock. Lawson has 3,000 shares of stock outstanding at a price of $28 a share. Aardvark has 1,100 shares outstanding with a market value of $23 a share. The incremental value of the acquisition is $1,400. What is the value of Lawson Products after the merger?

A) $79,400
B) $83,000
C) $111,600
D) $110,700
E) $143,000

Question 66

Pearl, Inc. has offered $218 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $215 million as an independent operation. If the merger makes economic sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger?

A) $0
B) $5 million
C) $3 million
D) $1 million
E) $4 million

Question 67

Moore Industries has agreed to be acquired by Scott Enterprises for 800 shares of Scott Enterprises stock. Scott Enterprises currently has 7,500 shares of stock outstanding at a price of $28 a share. Moore Industries has 1,800 shares outstanding at a price of $12 a share. The incremental value of the acquisition is $1,100. What is the value per share of Scott Enterprises stock after the acquisition?

A) $27.52
B) $27.96
C) $28.04
D) $28.47
E) $31.03

Question 68

Taylor's Hardware is acquiring The Corner Store for $27,400 in cash. Taylor's has 1,500 shares of stock outstanding at a market value of $44 a share. The Corner Store has 2,100 shares of stock outstanding at a market price of $12 a share. Neither firm has any debt. The incremental value of the acquisition is $1,700. What is the value of Taylor's Hardware after the acquisition?

A) $49,000
B) $50,300
C) $57,300
D) $65,500
E) $72,400

Question 69

Nadine's Home Fashions has $2.12 million in net working capital. The firm has fixed assets with a book value of $31.64 million and a market value of $33.9 million. The firm has no long-term debt. The Home Centre is buying Nadine's for $37.5 million in cash. The acquisition will be recorded using the purchase accounting method. What is the amount of goodwill that The Home Centre will record on its balance sheet as a result of this acquisition?

A) $1.48 million
B) $3.34 million
C) $3.74 million
D) $4.14 million
E) $5.86 million

Question 70

Sue's Bakery is planning on merging with Ted's Deli. Sue's will pay Ted's shareholders the current value of their stock in shares of Sue's Bakery. Sue's currently has 6,500 shares of stock outstanding at a market price of $26 a share. Ted's has 2,300 shares outstanding at a price of $18 a share. What is the value of the merged firm if the synergy created by the merger is $3,200?

A) $206,500
B) $210,400
C) $225,400
D) $213,600
E) $231,300

Question 71

The Cookie Shoppe and Sweet Treats are all-equity firms. The Cookie Shoppe has 3,400 shares outstanding at a market price of $31 a share. Sweet Treats has 6,100 shares outstanding at a price of $42 a share. Sweet Treats is acquiring the Cookie Shoppe for $107,500 in cash. The incremental value of the acquisition is $2,900. What is the net present value of the acquisition?

A) $1,600
B) $800
C) $700
D) −$2,100
E) −$300

Question 72

Prior to the merger, Firm A has $1,250 in total earnings with 750 shares outstanding at a market price per share of $42. Firm B has $740 in total earnings with 220 shares outstanding at $18 per share. Assume Firm A acquires Firm B via an exchange of stock at a price of $20 for each share of B's stock. Both A and B have no debt outstanding. What will the earnings per share of Firm A be after the merger?

A) $2.10
B) $1.86
C) $1.95
D) $2.02
E) $2.33

Question 73

Hanover Tires is being acquired by Better Tires for $85,000 worth of Better Tires stock. Hanover Tires has 2,600 shares of stock outstanding at a price of $32 a share. Better Tires has 7,500 shares outstanding with a market value of $29 a share. The incremental value of the acquisition is $2,200. How many new shares of stock will be issued to complete this acquisition?

A) 2,872
B) 3,016
C) 3,133
D) 2,931
E) 2,987

Question 74

Glendale Marine is being acquired by Inland Motors for $60,000 worth of Inland Motors stock. Inland Motors has 8,200 shares of stock outstanding at a price of $51 a share. Glendale Marine has 1,600 shares outstanding with a market value of $36 a share. The incremental value of the acquisition is $3,200. What is the total number of shares in the new firm?

A) 9,229
B) 9,376
C) 9,529
D) 9,852
E) 9,900

Question 75

Rural Markets and Flo's Flowers are all-equity firms. Rural Markets has 2,300 shares outstanding at a market price of $16.50 a share. Flo's Flowers has 5,000 shares outstanding at a price of $17 a share. Flo's Flowers is acquiring Rural Markets for $39,000 in cash. The incremental value of the acquisition is $1,800. What is the net present value of acquiring Rural Markets to Flo's Flowers?

A) $750
B) −$1,050
C) −$250
D) $400
E) $1,800

Question 76

Silver Enterprises has acquired All Gold Mining in a merger transaction. The pre-merger balance sheet for Silver Enterprises has current assets of $1,500, other assets of $400, net fixed assets of $2,300, current liabilities of $1,000, long-term debt of $500 and owners' equity of $,2700. The pre-merger balance sheet for All Gold Mining shows current assets of $600, other assets of $210, net fixed assets of $1,600, current liabilities of $500, and equity of $1,910. Assume the merger is treated as a purchase for accounting purposes. The market value of All Gold Mining's fixed assets is $2,900; the market values for current and other assets are the same as the book values. Assume that Silver Enterprises issues $4,000 in new long-term debt to finance the acquisition. The post-merger balance sheet will reflect goodwill of ________ and total equity of ________.

A) $640; $2,700
B) $790; $4,610
C) $790; $2,700
D) $890; $4,610
E) $890; $2,700

Question 77

News Express has 26,200 shares outstanding at a market price of $33.30 a share. Nu-News has 15,000 shares outstanding at a price of $54 a share. The News Express is acquiring Nu-News. Both firms are all-equity financed. The incremental value of the acquisition is $2,500. What is the value of Nu-News to News Express?

A) $874,960
B) $804,960
C) $869,960
D) $807,500
E) $812,500

Question 78

Firm A is acquiring Firm B for $69,000 in cash. Firm A has 4,300 shares of stock outstanding at a market value of $32 a share. Firm B has 2,100 shares of stock outstanding at a market price of $32 a share. Neither firm has any debt. The incremental value of the acquisition is $2,200. What is the price per share of Firm A's stock after the acquisition?

A) $31.98
B) $31.45
C) $32.09
D) $32.16
E) $32.33

Question 79

The Cycle Stop has 1,400 shares outstanding at a market price per share of $10.80. Kate's Wheels has 1,750 shares outstanding at a market price of $13 a share. Neither firm has any debt. Kate's Wheels is acquiring The Cycle Stop for $16,500 in cash. What is the merger premium per share?

A) $.27
B) $.46
C) $.99
D) $1.21
E) $2.20

Question 80

Sleep Tight is acquiring Restful Inns for $52,500 in cash. Sleep Tight has 3,000 shares of stock outstanding at a market price of $38 a share. Restful Inns has 2,100 shares of stock outstanding at a market price of $24 a share. Neither firm has any debt. The incremental value of the acquisition is $1,700. What is the price per share of Sleep Tight after the acquisition?

A) $36.92
B) $37.30
C) $37.87
D) $39.19
E) $39.29