Question 1

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

Accepted Answer

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 IVF) A) and B)
G) None of the above

Question 2

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 $19 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?

Accepted Answer

A)   $50,509
B)   $52,276
C)   $53,200
D)   $56,780
E)   $60,600F) A) and B)
G) A) and C)

Question 3

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?

Accepted Answer

A)   divestiture
B)   consolidation
C)   tender offer
D)   spinoff
E)   conglomerationF) A) and D)
G) A) and C)

Question 4

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 E)
G) A) and C)

Question 5

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:

Accepted Answer

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

Question 6

A potential merger which produces synergy:

Accepted Answer

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

Question 7

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 1,700 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?

Accepted Answer

A)   $85,500
B)   $256,000
C)   $277,000
D)   $320,500
E)   $350,100F) C) and D)
G) B) and E)

Question 8

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

Accepted Answer

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

Question 9

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)   current management team of the target firm is technologically knowledgeable but yet ineffective.F) C) and D)
G) C) and E)

Question 10

Nelson's Interiors has $1.52 million in net working capital.The firm has fixed assets with a book value of $23.23 million and a market value of $26.16 million.The firm has no long-term debt.The Home Centre is buying Nelson's Interiors for $29.5 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?

Accepted Answer

A)   $1.82 million
B)   $3.34 million
C)   $3.88 million
D)   $4.14 million
E)   $6.27 millionF) C) and D)
G) B) and D) A

Question 11

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.

Accepted Answer

The empirical evidence strongly indicate...

Question 12

An acquisition completed simply to diversify a firm will:

Accepted Answer

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

Question 13

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?

Accepted Answer

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

Question 14

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) :

Accepted Answer

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

Question 15

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:

Accepted Answer

A)   conglomeration.
B)   proxy contest.
C)   merger.
D)   leveraged buyout.
E)   consolidation.F) None of the above
G) C) and E)

Question 16

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

Accepted Answer

The three forms are merger,acquisition of stock,and acquisition of assets.A merger has the advantage that it is legally simple and therefore low cost but it has the disadvantage that it must be approved by the shareholders of both firms.Acquisition by stock requires no shareholder meetings and management of the target firm can be bypassed.However,it can be a costly form of acquisition and minority shareholders may hold out,thereby raising the cost of the purchase.An acquisition of assets requires the vote of the target firm's shareholders.However,it can become quite costly to transfer title to all of the assets.

Question 17

In a merger the:

Accepted Answer

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

Question 18

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

Accepted Answer

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

Question 19

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) None of the above
G) B) and C)

Question 20

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?

Accepted Answer

A)   2,472 shares
B)   3,016 shares
C)   3,133 shares
D)   3,870 shares
E)   3,987 sharesF) A) and B)
G) All of the above D

Exam 26: Mergers and Acquisitions

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

Correct Answer
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Correct Answer
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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?

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

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:

Correct Answer
verified

A potential merger which produces synergy:

Correct Answer
verified

Correct Answer
verified

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

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

Correct Answer
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A

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.

Correct Answer
verified
The empirical evidence strongly indicate...
View Answer

An acquisition completed simply to diversify a firm will:

Correct Answer
verified

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?

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

In a merger the:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
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Correct Answer
verified
D

Exam 26: Mergers and Acquisitions

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

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

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:

Correct AnswerverifiedShow Answer

A potential merger which produces synergy:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedA

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.

Correct AnswerverifiedThe empirical evidence strongly indicate...View AnswerShow Answer

An acquisition completed simply to diversify a firm will:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

In a merger the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

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A

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The empirical evidence strongly indicate...
View Answer

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Correct Answer
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D