Deck 26: Mergers and Acquisitions

Question 1

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

Answer 1

tender offer

Question 2

Which of the following increase the costs associated with a merger?

A)changing the title to all the combined firm's assets
B)disbanding the operations of the target firm
C)hiring an underwriter to distribute the IPO shares
D)issue costs associated with warrants that must be offered to the shareholders of the acquiring firm
E)seeking approval of the shareholders of both the acquiring and the acquired firm

Answer 2

seeking approval of the shareholders of both the acquiring and the acquired firm

Question 3

Princeton Enterprises is a diversified company. In addition to its primary business operations, the firm is also the sole shareholder of a wholly owned subsidiary. As part of its restructuring plan, Princeton has decided to implement an IPO offering for shares in the subsidiary. This offering is equivalent to a 25 percent ownership stake in the subsidiary. What is the distribution of these shares called?

A)split-up
B)equity carve-out
C)countertender offer
D)white knight transaction
E)lockup transaction

Answer 3

equity carve-out

Question 4

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 5

Blasco Distributors has become a large conglomerate. Its board of directors recently concluded that the firm has become so large that it has lost its efficiency. The board further concluded that the firm could be both more efficient and more profitable if it were divided into three distinct and separate firms. The board presented this suggested to the firm's shareholders and those shareholders voted and agreed to divide the firm. Dividing this firm into separate entities is referred to as a(n):

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

Question 6

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 which 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 which becomes a subsidiary of the acquiring firm.

Question 7

Alliance Chemicals recently acquired Swenson Industries in a transaction that produced a NPV of $1.3 million. This NPV is referred to as:

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

Question 8

The current president and vice-presidents of Mountain Top Consulting have decided to form a private investment group with the sole purpose of purchasing Mountain Top Consulting. These individuals have found a lender who will lend them 85 percent of the purchase cost if they pledge their personal assets as collateral for the loan. The current officers agree to this arrangement, borrow the funds, and purchase Mountain Top Consulting. The purchase of this firm is referred to as a:

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

Question 9

Family Travel Plans is the sole shareholder in its subsidiary, Traveler's Insurance Co. Family Travel Plans 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 Plans. 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 10

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 11

Nieger Mills engages in farming, trucking of farm products, and the milling and retailing of farm grains. The firm has decided to sell its farming operations to Jasper Farms. This sale is referred to as a(n):

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

Question 12

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 13

Johnson Manufacturers and Peabody Enterprises are both manufacturers of plastic products, such as plastic plates and silverware. These two firms have decided to work together to find a more efficient way to recycle rejected products so that any rejected material can be reused. Thus, each company is going to assign two of its engineers to this project and have agreed to share any and all costs incurred in this process. This project is an example of a:

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

Question 14

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)leveraged buyout
E)consolidation

Question 15

Which of the following statements correctly apply to a merger?
I. The titles to individual assets of the acquired firm must be transferred into the acquiring firm's name.
II. The merged firm will retain the use of the acquiring company's name.
III. The acquiring firm does not have to seek approval for the merger from its shareholders.
IV. The shareholders of the acquired company must approve the merger.

A)I and III only
B)II and IV only
C)I, II, and III only
D)I, II, and IV only
E)I, II, III, and IV

Question 16

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 forego 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)shark repellent plan
C)golden parachute provision
D)greenmail provision
E)share rights plan

Question 17

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 $35 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 18

Some Freight Line Express shareholders are very dissatisfied with the performance of the firm's current management team. These shareholders want to gain control of the board of directors so they can have the power to oust current management. As a means of gaining control, these shareholders have select candidates for all of the open positions on the firm's board of directors. Since they have insufficient votes to guarantee the election of these individuals, they are contacting other shareholders and asking them to vote with them on this important matter. Of course, the current management team is encouraging shareholders to vote for their candidates for the board. Which one of the following terms is best illustrated by this situation?

A)tender offer
B)proxy contest
C)going-private transaction
D)leveraged buyout
E)consolidation

Question 19

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 20

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 21

A potential merger which 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 22

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

A)receive income which 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 23

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 24

Which of the following are examples of cost reductions that can result from an acquisition?
I. allocating fixed overhead across a wider range of products
II. lowering office payroll costs by combining job functions
III. benefiting from economies of scale when purchasing raw materials
IV. reducing the number of management personnel required

A)I and III only
B)II and IV only
C)I, II, and IV only
D)II, III, and IV only
E)I, II, III, and IV

Question 25

Which of the following are required for an acquisition to be considered tax-free?
I. continuity of equity interest
II. a business purpose, other than avoiding taxes, for the acquisition
III. payment in the form of equity shares for the acquired firm
IV. cash payment for the equity of the acquired firm

A)I and II only
B)II and III only
C)II and IV only
D)I, II, and III only
E)I, II, and IV only

Question 26

Which of the following is a form of a takeover?
I. tender offer
II. merger
III. proxy contest
IV. going private transaction

A)I and II only
B)III and IV only
C)II, III, and IV only
D)I, II, and III only
E)I, II, III, and IV

Question 27

Which one of the following statements is correct?

A)Firms with large net operating losses tend to be acquiring firms rather than target firms.
B)The leverage associated with an acquisition increases the tax liability of the acquiring firm.
C)If either an increase or a decrease in the level of production causes the average cost per unit to increase then the firm is currently operating at its optimal production level.
D)Firms can always benefit from economies of scale if they increase the size of their firm through acquisitions.
E)If a firm uses it surplus cash to acquire another firm then the shareholders of the acquiring firm immediately incur a tax liability related to the transaction.

Question 28

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 95 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 non-taxable 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 29

If General Electric, 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 30

Which of the following represent potential tax benefits that can directly result from an acquisition?
I. an increase in depreciation expense
II. an increase in surplus funds
III. the use of net operating losses
IV. an increased use of leverage

A)I and IV only
B)II and III only
C)I, III, and IV only
D)II, III, and IV only
E)I, II, III, and IV

Question 31

The incremental cash flows of a merger can relate to changes in which of the following?
I. revenue
II. capital requirements
III. operating costs
IV. income taxes

A)I and II only
B)II, III, and IV only
C)I, III, and IV only
D)I, II, and III only
E)I, II, III, and IV

Question 32

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.
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 33

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)current management team of the target firm is technologically knowledgeable but yet ineffective.

Question 34

If Paul's Hardware were to acquire Suburban Hardware, the acquisition would be classified as a _____ acquisition.

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

Question 35

A proposed acquisition may create synergy by:
I. increasing the market power of the combined firm.
II. improving the distribution network of the acquiring firm.
III. providing the combined firm with a strategic advantage.
IV. reducing the utilization of the acquiring firm's assets.

A)I and III only
B)II and III only
C)I and IV only
D)I, II, and III only
E)I, II, III, and IV

Question 36

Which one of the following best defines synergy given the following?
V_A = Value of firm A
V_B = Value of firm B
V_AB = Value of merged firm AB

A)(V_A + V_B) - V_AB
B)V_AB - (V_A + V_B)
C)greater of 0 or (V_A + V_B) - V_AB
D)greater of 0 or V_AB - (V_A + V_B)
E)greater of 0 or V_AB

Question 37

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 maid service
E)trucking company and lawn service

Question 38

Down River Markets has decided to acquire a controlling interest in Blue Jays by purchasing shares of stock in the public markets. Which of the following statements correctly apply to this acquisition?
I. The purchase of publicly-traded shares may be more expensive than an outright merger with Blue Jays would have been.
II. Down River Markets can avoid dealing with the board of directors of Blue Jays by purchasing shares in this manner.
III. If Down River Markets is successful in acquiring at least 80 percent of the outstanding shares of Blue Jays, the remaining shareholders in Blue Jays will be forced to also sell their shares to Down River Markets.
IV. Whether or not Down River Markets gains control of Blue Jays depends upon the willingness of Blue Jays shareholders to sell their shares.

A)I and III only
B)II and IV only
C)I, II, and IV only
D)I, II, and III only
E)I, II, III, and IV

Question 39

Dixie and ten of her wealthy friends formed a group and borrowed the funds necessary to acquire 100 percent 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 40

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

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

Question 41

Outdoor Living has agreed to be acquired by New Adventures for $48,000 worth of New Adventures stock. New Adventures currently has 8,000 shares of stock outstanding at a price of $32 a share. Outdoor Living has 1,500 shares outstanding at a price of $43 a share. The incremental value of the acquisition is $21,000. What is the value of the merged firm?

A)$85,500
B)$256,000
C)$277,000
D)$320,500
E)$341,500

Question 42

Taylor's Hardware is acquiring The Corner Store for $20,000 in cash. Taylor's has 1,500 shares of stock outstanding at a market value of $46 a share. The Corner Store has 2,200 shares of stock outstanding at a market price of $8 a share. Neither firm has any debt. The incremental value of the acquisition is $3,500. What is the value of Taylor's Hardware after the acquisition?

A)$49,000
B)$50,300
C)$67,300
D)$70,100
E)$72,400

Question 43

Which of the following have been suggested as reasons why the stockholders in acquiring firms may not benefit to any significant degree from an acquisition?
I. the price paid for the target firm might equal the target firm's total value
II. management may have priorities other than the interest of the stockholders
III. the takeover market may not be competitive
IV. anticipated merger gains may not be fully achieved

A)I and III only
B)II and IV only
C)I, III, and IV only
D)I, II, and IV only
E)I, II, III, and IV

Question 44

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 45

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 46

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

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

Question 47

Which of the following are reasons why a firm may want to divest itself of some of its assets?
I. to raise cash
II. to unload unprofitable operations
III. to improve the strategic fit of a firm's various divisions
IV. to comply with antitrust regulations

A)I and II only
B)I, II, and III only
C)I, III, and IV only
D)II, III, and IV only
E)I, II, III, and IV

Question 48

The Floral Shoppe and Maggie's Flowers are all-equity firms. The Floral Shoppe has 2,500 shares outstanding at a market price of $16.50 a share. Maggie's Flowers has 5,000 shares outstanding at a price of $17 a share. Maggie's Flowers is acquiring The Floral Shoppe for $42,900 in cash. The incremental value of the acquisition is $1,200. What is the net present value of acquiring The Floral Shoppe to Maggie's Flowers?

A)-$450
B)$275
C)$500
D)$2,400
E)$3,700

Question 49

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 50

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 51

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 will remain constant as a result of an acquisition which 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) If no value is created when firm A acquires firm B, then the total value of AB will equal the value of A plus the value of B.
E) Diversification is one of the greatest benefits derived from an acquisition.

Question 52

Rosie's has 1,800 shares outstanding at a market price per share of $23.50. Sandy's has 2,500 shares outstanding at a market price of $21 a share. Neither firm has any debt. Sandy's is acquiring Rosie's. The incremental value of the acquisition is $1,200. What is the value of Rosie's to Sandy's?

A)$41,100
B)$41,900
C)$42,300
D)$42,700
E)$43,500

Question 53

Moore Industries has agreed to be acquired by Scott Enterprises for $22,000 worth 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)$28.08
D)$28.47
E)$31.03

Question 54

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

Question 55

The Sweet Shoppe and Candy Land are all-equity firms. The Sweet Shoppe has 500 shares outstanding at a market price of $96 a share. Candy Land has 2,500 shares outstanding at a price of $24 a share. The Sweet Shoppe is acquiring Candy Land for $62,000 in cash. The incremental value of the acquisition is $3,600. What is the net present value of acquiring Candy Land to The Sweet Shoppe?

A)$1,100
B)$1,600
C)$2,700
D)$4,200
E)$5,700

Question 56

Which one of the following statements is correct?

A)A spin-off frequently follows an equity carve-out.
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)A divestiture means that the original firm ceases to exist.

Question 57

Firm A is acquiring Firm B for $75,000 in cash. Firm A has 4,500 shares of stock outstanding at a market value of $27 a share. Firm B has 2,500 shares of stock outstanding at a market price of $29 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)$25.98
B)$26.45
C)$26.93
D)$27.00
E)$27.33

Question 58

Which of the following represent potential gains from an acquisition?
I. increased use of debt
II. lower costs per unit produced
III. strategic beachhead
IV. diseconomies of scale

A)II and III only
B)I and IV only
C)I, II, and III only
D)I, III, and IV only
E)I, II, III, and IV

Question 59

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 60

The Town Crier and The News Express are all-equity firms. The Town Crier has 11,500 shares outstanding at a market price of $26 a share. The News Express has 15,000 shares outstanding at a price of $31 a share. The News Express is acquiring The Town Crier. The incremental value of the acquisition is $3,800. What is the value of The Town Crier to The News Express?

A)$57,500
B)$75,000
C)$87,000
D)$299,000
E)$302,800

Question 61

Firm A is being acquired by Firm B for $54,000 worth of Firm B stock. The incremental value of the acquisition is $5,600. Firm A has 2,400 shares of stock outstanding at a price of $21 a share. Firm B has 2,700 shares of stock outstanding at a price of $50 a share. What is the actual cost of the acquisition using company stock?

A)$50,509
B)$52,276
C)$54,571
D)$56,780
E)$60,600

Question 62

Firm B is being acquired by Firm A for $162,000 worth of Firm A stock. The incremental value of the acquisition is $4,600. Firm A has 8,500 shares of stock outstanding at a price of $36 a share. Firm B has 5,900 shares of stock outstanding at a price of $27 a share. What is the value per share of Firm A after the acquisition?

A)$35.28
B)$35.71
C)$36.00
D)$36.15
E)$37.04

Question 63

Glendale Marine is being acquired by Inland Motors for $53,000 worth of Inland Motors stock. Inland Motors has 6,200 shares of stock outstanding at a price of $54 a share. Glendale Marine has 1,700 shares outstanding with a market value of $30 a share. The incremental value of the acquisition is $2,600. What is the total number of shares in the new firm?

A)6,200 shares
B)7,181 shares
C)7,229 shares
D)7,852 shares
E)7,900 shares

Question 64

Empirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm. Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.

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 1,200 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)$113,000
E)$143,000

Question 66

George's Equipment is planning on merging with Nelson Machinery. George's will pay Nelson's shareholders the current value of their stock in shares of George's Equipment. George's currently has 4,600 shares of stock outstanding at a market price of $31 a share. Nelson's has 1,600 shares outstanding at a price of $38 a share. What is the value per share of the merged firm?

A)$30.77
B)$31.00
C)$31.29
D)$31.74
E)$32.06

Question 67

Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that neither firm has any debt outstanding. Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $2,600. What is the NPV of the merger assuming that Firm T is willing to be acquired for $28 per share in cash?

A)$400
B)$600
C)$1,800
D)$2,200
E)$2,600

Question 68

Pearl, Inc. has offered $860 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $710 million as an independent operation. For the merger to make economic sense for Pearl, what would the minimum estimated value of the synergistic benefits from the merger have to be?

A)$0
B)$75 million
C)$150 million
D)$710 million
E)$860 million

Question 69

Merchantile Exchange is being acquired by National Sales. The incremental value of the acquisition is $1,800. Merchantile Exchange has 1,500 shares of stock outstanding at a price of $18 a share. National Sales has 3,500 shares of stock outstanding at a price of $54 a share. What is the net present value of the acquisition given that the actual cost of the acquisition using company stock is $28,780?

A)$8
B)$11
C)$20
D)$37
E)$46

Question 70

Dressler, Inc., is planning on merging with Weston Foods. Dressler will pay Weston's shareholders the current value of its stock in shares of Dressler stock. Dressler's currently has 6,200 shares of stock outstanding at a market price of $30 a share. Weston's has 2,200 shares outstanding at a price of $28 a share. How many shares of stock will be outstanding in the merged firm?

A)6,840 shares
B)7,061 shares
C)7,200 shares
D)8,253 shares
E)8,609 shares

Question 71

Identify the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Question 72

Firms can frequently create synergy by merging and sharing complementary resources with another firm. Give two examples of situations where this would most likely occur.

Question 73

Hanover Tires is being acquired by Better Tires for $89,000 worth of Better Tires stock. Hanover Tires has 2,500 shares of stock outstanding at a price of $36 a share. Better Tires has 6,000 shares outstanding with a market value of $23 a share. The incremental value of the acquisition is $4,200. How many new shares of stock will be issued to complete this acquisition?

A)2,472 shares
B)3,016 shares
C)3,133 shares
D)3,870 shares
E)3,987 shares

Question 74

The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation. Information about each firm is given here: 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)8.4
B)9.2
C)9.8
D)10.5
E)11.2

Question 75

Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flows by $3.7 million indefinitely. The current market value of Teller is $103 million, and that of Penn is $151.7 million. The appropriate discount rate for the incremental cash flows is 9 percent. Penn is trying to decide whether it should offer 44 percent of its stock of $133 million in cash to Teller's shareholders. The cost of the cash alternative is _____, while the cost of the stock alternative is _____.

A)$103,000,000; $130,156,889
B)$103,000,000; $133,000,000
C)$133,000,000; $103,000,000
D)$133,000,000; $130,156,889
E)$236,000,000; $103,000,000

Question 76

Consider the following premerger information about Firm A and Firm B: Assume that Firm A acquires Firm B via an exchange of stock at a price of $25 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)$1.60
B)$1.86
C)$1.95
D)$2.02
E)$2.10

Question 77

Alpha is planning on merging with Beta. Alpha will pay Beta's shareholders the current value of their stock in shares of Alpha. Alpha currently has 4,200 shares of stock outstanding at a market price of $40 a share. Beta has 2,500 shares outstanding at a price of $18 a share. The after-merger earnings will be $8,800. What will the earnings per share be after the merger?

A)$1.61
B)$1.65
C)$1.75
D)$1.81
E)$1.86

Question 78

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 4,500 shares of stock outstanding at a market price of $19 a share. Ted's has 2,100 shares outstanding at a price of $20 a share. What is the value of the merged firm?

A)$106,500
B)$107,800
C)$125,400
D)$127,500
E)$131,600

Question 79

Defensive merger tactics are designed to thwart unwanted takeovers and mergers. Do such activities work to the advantage of shareholders all of the time?
Are these types of activities ethical?
Who do you think benefits the most from these activities?