Question 1

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:

Accepted Answer

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.F) B) and E)
G) A) and B)

Question 2

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?

Accepted Answer

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.F) A) and B)
G) A) and D)

Question 3

Which one of these statements is false?

Accepted Answer

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.F) D) and E)
G) B) and E)

Question 4

If a merger creates synergy, then the:

Accepted Answer

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.F) B) and C)
G) A) and E)

Question 5

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?

Accepted Answer

A)   $27.52
B)   $27.96
C)   $28.04
D)   $28.47
E)   $31.03F) All of the above
G) B) and C)

Question 6

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?

Accepted Answer

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

Question 7

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

Accepted Answer

A)   Horizontal
B)   Longitudinal
C)   Conglomerate
D)   Vertical
E)   IndirectF) B) and C)
G) C) and E)

Question 8

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?

Accepted Answer

A)   9,229
B)   9,376
C)   9,529
D)   9,852
E)   9,900F) All of the above
G) C) and D)

Question 9

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

Accepted Answer

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 incomeF) A) and B)
G) A) and C)

Question 10

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

Accepted Answer

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

Question 11

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

Accepted Answer

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.F) A) and D)
G) A) and E)

Question 12

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

Accepted Answer

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.F) A) and D)
G) A) and E)

Question 13

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?

Accepted Answer

A)   Golden parachute
B)   Standstill agreement
C)   Greenmail
D)   Poison pill
E)   White knightF) A) and D)
G) C) and E)

Question 14

A proposed acquisition is most apt to create synergy by:

Accepted Answer

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.F) C) and D)
G) A) and E)

Question 15

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

Accepted Answer

A)   tender offer.
B)   consolidation.
C)   going private transaction.
D)   proxy contest.
E)   strategic alliance.F) A) and C)
G) All of the above

Question 16

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

Accepted Answer

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.F) B) and C)
G) D) and E)

Question 17

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?

Accepted Answer

A)   2,872
B)   3,016
C)   3,133
D)   2,931
E)   2,987F) B) and D)
G) All of the above

Question 18

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?

Accepted Answer

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

Question 19

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?

Accepted Answer

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

Question 20

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?

Accepted Answer

A)   Merger request
B)   Consolidation
C)   Tender offer
D)   Spinoff
E)   DivestitureF) C) and D)
G) B) and E)

Exam 26: Mergers and Acquisitions

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?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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:

Correct Answer
verified

A proposed acquisition is most apt to create synergy by:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which one of these statements is false?

Correct Answer
verified

Correct Answer
verified

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?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

If a merger creates synergy, then the:

Correct Answer
verified

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

Correct Answer
verified

Exam 26: Mergers and Acquisitions

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

A proposed acquisition is most apt to create synergy by:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of these statements is false?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a merger creates synergy, then the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified