Question 1

If a firm is afraid of being prevented from using a certain supplier due to a proposed merger, what type of merger is the proposed merger likely to be?

Accepted Answer

A)  A consolidation 
B)  A horizontal merger 
C)  A conglomerate merger 
D)  A vertical merger

Question 2

A reorganization in bankruptcy is a business plan that enables a bankrupt firm to continue operating. The acceptability of a plan depends upon the following criteria:

Accepted Answer

A)  fairness and timeliness of debt repayment. 
B)  feasibility and timeliness of debt repayment. 
C)  feasibility and fairness of debt repayment. 
D)  the reasonability of the debt restructuring scheme and the timeliness of debt repayment.

Question 3

Which of the following is incorrect? Merger analysis is:

Accepted Answer

A)  a straightforward capital budgeting exercise. 
B)  difficult because it's hard for the acquirer to get an accurate estimate of the target's cash flows. 
C)  imprecise because of the variability of terminal value estimates. 
D)  not always performed rationally judging by the price premiums paid for many acquisitions.

Question 4

When an acquiring firm pays too much for an acquisition the real losers are the acquirer's top management and board of directors.

Accepted Answer

A) True 
 B)False

Question 5

An investment banker's role in a merger might include:

Accepted Answer

A)  counseling reluctant targets on defensive measures. 
B)  assisting the acquiring company in raising the capital necessary to pay for the target. 
C)  assisting the acquiring company in establishing a value for the target. 
D)  All of the above

Question 6

Generally, what minimum level of ownership guarantees control of a firm?

Accepted Answer

A)  10% 
B)  25% 
C)  40% 
D)  51%

Question 7

Mergers are accomplished only with the approval of the acquired firm's management.

Accepted Answer

A) True 
 B)False

Question 8

The type of business combination in which the acquiring firm becomes the parent and the target a subsidiary is:

Accepted Answer

A)  a consolidation. 
B)  an acquisition. 
C)  a merger. 
D)  b and c

Question 9

An agreement under which creditors accept partial payment in settlement of their claims is a:

Accepted Answer

A)  subordination. 
B)  composition. 
C)  extension. 
D)  funding.

Question 10

What type of merger listed below would have the most need for a holding company?

Accepted Answer

A)  A vertical merger 
B)  A conglomerate merger 
C)  A horizontal merger 
D)  A consolidating merger

Question 11

The price premium in a merger is the difference between the price offered for the target company's stock and:

Accepted Answer

A)  the target's book value before news of the acquisition got out. 
B)  the target's book value after news of the acquisition got out. 
C)  the target's market value before news of the acquisition got out. 
D)  the target's market value after news of the acquisition got out.

Question 12

Accelerated debt is an anti-takeover strategy in which the target's debt must be paid off in the event it is taken over.

Accepted Answer

A) True 
 B)False

Question 13

Antitrust laws are intended to maintain a competitive economy.

Accepted Answer

A) True 
 B)False

Question 14

Golden parachutes are exorbitant severance packages offered to the target's top management should they be fired after a takeover.

Accepted Answer

A) True 
 B)False

Question 15

Control obtained through the solicitation of proxies is never sufficient to achieve a takeover.

Accepted Answer

A) True 
 B)False

Question 16

A combination of two entities in which only one legally ceases to exist is:

Accepted Answer

A)  a subsidiary. 
B)  a parent company. 
C)  a consolidation. 
D)  a merger.

Question 17

In a vertical merger or combination, the firms involved are in supplier-customer relationships.

Accepted Answer

A) True 
 B)False

Question 18

Landmark Hotels is in the hospitality industry. Management is considering acquiring Wind Flower, a small chain of luxury resorts. In this way, Landmark can save the expense of starting its own line of resorts from scratch. What kind of a merger will this be?

Accepted Answer

A)  Horizontal merger 
B)  Conglomerate merger 
C)  Strategic merger 
D)  Financial merger

Question 19

In merger analysis, a terminal value represents:

Accepted Answer

A)  the estimated value of the target company exactly three years in the future. 
B)  the book value of the target's assets at the end of the period of cash flow estimation. 
C)  the target's value after a period of detailed cash flow estimation, generally assuming it will grow at a constant rate indefinitely. 
D)  the net income of the target company during its last full year prior to acquisition. 
E)  None of the above describes the terminal value concept.

Question 20

Which of the following led to the end of private equity dominated merger activities in 2008?

Accepted Answer

A)  Concern about hostile take overs 
B)  The continued response to the terrorist attacks of September 11, 2001 
C)  A general increase in the rate of globalization 
D)  A lack of availability of financing

Exam 18: Corporate Restructuring

If a firm is afraid of being prevented from using a certain supplier due to a proposed merger, what type of merger is the proposed merger likely to be?

A reorganization in bankruptcy is a business plan that enables a bankrupt firm to continue operating. The acceptability of a plan depends upon the following criteria:

Which of the following is incorrect? Merger analysis is:

When an acquiring firm pays too much for an acquisition the real losers are the acquirer's top management and board of directors.

An investment banker's role in a merger might include:

Generally, what minimum level of ownership guarantees control of a firm?

Mergers are accomplished only with the approval of the acquired firm's management.

The type of business combination in which the acquiring firm becomes the parent and the target a subsidiary is:

An agreement under which creditors accept partial payment in settlement of their claims is a:

What type of merger listed below would have the most need for a holding company?

The price premium in a merger is the difference between the price offered for the target company's stock and:

Accelerated debt is an anti-takeover strategy in which the target's debt must be paid off in the event it is taken over.

Antitrust laws are intended to maintain a competitive economy.

Golden parachutes are exorbitant severance packages offered to the target's top management should they be fired after a takeover.

Control obtained through the solicitation of proxies is never sufficient to achieve a takeover.

A combination of two entities in which only one legally ceases to exist is:

In a vertical merger or combination, the firms involved are in supplier-customer relationships.

Landmark Hotels is in the hospitality industry. Management is considering acquiring Wind Flower, a small chain of luxury resorts. In this way, Landmark can save the expense of starting its own line of resorts from scratch. What kind of a merger will this be?

In merger analysis, a terminal value represents:

Which of the following led to the end of private equity dominated merger activities in 2008?