Question 1

The merger between Uptown Bank and Downtown Bank is an example of a:

Accepted Answer

A)   vertical merger.
B)   horizontal merger.
C)   conglomerate merger.
D)  direct merger.

Question 2

Which percentage of shareholder approval would be most associated with a shark-repellent strategy?

Accepted Answer

A)   10%
B)   25%
C)   50%
D)  80%

Question 3

How should the gains and costs of mergers to the acquiring firm be measured?

Accepted Answer

A merger generates an economic gain if t...

Question 4

Which one of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

Accepted Answer

A)   There is no cash outflow.
B)   It mitigates the effects of overvaluation of the target firm.
C)   It mitigates the effects of undervaluation of the target firm.
D)  It avoids dilution of shares.

Question 5

Splitting one firm into four separate firms is an example of a:

Accepted Answer

A)   leveraged buyout.
B)   spin-off.
C)   management buyout.
D)  tender offer.

Question 6

Duke Energy and Progress Energy anticipated their merger would result in cost savings in fuel and labor costs.

Accepted Answer

A) True 
 B)False

Question 7

Shares of a corporation can, under certain circumstances, be priced at different amounts to different investors under the terms of a:

Accepted Answer

A)   proxy agreement.
B)   public tender offer.
C)   poison pill.
D)  shark repellent.

Question 8

Only the U.S. has antitrust laws that can affect mergers and acquisitions.

Accepted Answer

A) True 
 B)False

Question 9

One indication that investors expect no synergy from a merger would be that the:

Accepted Answer

A)   total market value of the merged firms does not change.
B)   P/E ratio of the merged firms' changes.
C)   acquiring firm financed the merger with cash.
D)  merged firms are from different industries.

Question 10

Conglomerate mergers involve companies in:

Accepted Answer

A)   similar lines of business.
B)   different stages of the corporate life cycle.
C)   unrelated lines of business.
D)  different countries.

Question 11

Describe the basic differences between mergers, leveraged buyouts, management buyouts, divestitures, and spin-offs.

Accepted Answer

A merger occurs when an acquiring compan...

Question 12

When a firm's management takes the firm private with the aid of substantial debt, it is known as a management:

Accepted Answer

A)   tender offer.
B)   greenmail offer.
C)   buyout.
D)  hostile takeover.

Question 13

The cost of a merger equals the:

Accepted Answer

A)   cash paid for the target firm.
B)   increase in total earnings minus the price paid.
C)   premium paid over the target's value as a separate entity.
D)  sum of cash and stock paid for the target firm.

Question 14

A typical poison pill may give existing shareholders the right to buy the company's shares at half price as soon as a bidder acquires more than 15% of the shares. The bidder is not entitled to the discount.

Accepted Answer

A) True 
 B)False

Question 15

For firms in a mature stage of life with free cash flow, do you accept the charge that there might be some actual incentive to waste cash?

Accepted Answer

Firms with excess cash know that they mi...

Question 16

Firms that are acquired to take advantage of bootstrapping often have:

Accepted Answer

A)   a lower price-earnings ratio than the acquirer.
B)   a higher price-earnings ratio than the acquirer.
C)   more outstanding shares than the acquirer.
D)  a higher market valuation than the acquirer.

Question 17

A conglomerate merger is defined as the merger of two or more Fortune 500 companies.

Accepted Answer

A) True 
 B)False

Question 18

The free-cash-flow theory of takeovers predicts that firms:

Accepted Answer

A)   without free cash flow will become the most common LBOs.
B)   with free cash flow will continue to be the acquirers.
C)   with excess cash do not have a tendency to use it wisely.
D)  with excess cash tend to have the most carve-outs.

Question 19

Pfizer sold its infant nutrition business to Nestlé as part of its strategy to concentrate its focus on its core activities.

Accepted Answer

A) True 
 B)False

Question 20

Realizing the benefits of a merger is easier when the merging companies have differing:

Accepted Answer

A)   computer systems.
B)   pay structures.
C)   resources.
D)  company cultures.

Exam 21: Mergers, Acquisitions, and Corporate Control

Which one of the following is the most appropriate reason for an acquiring firm's shareholders to prefer using stock financing for acquisitions?

Correct AnswerverifiedShow Answer

Duke Energy and Progress Energy anticipated their merger would result in cost savings in fuel and labor costs.

Correct AnswerverifiedShow Answer

Describe the basic differences between mergers, leveraged buyouts, management buyouts, divestitures, and spin-offs.

Correct AnswerverifiedA merger occurs when an acquiring compan...View AnswerShow Answer

The free-cash-flow theory of takeovers predicts that firms:

Correct AnswerverifiedShow Answer

One indication that investors expect no synergy from a merger would be that the:

Correct AnswerverifiedShow Answer

Realizing the benefits of a merger is easier when the merging companies have differing:

Correct AnswerverifiedShow Answer

Splitting one firm into four separate firms is an example of a:

Correct AnswerverifiedShow Answer

Only the U.S. has antitrust laws that can affect mergers and acquisitions.

Correct AnswerverifiedShow Answer

Pfizer sold its infant nutrition business to Nestlé as part of its strategy to concentrate its focus on its core activities.

Correct AnswerverifiedShow Answer

Firms that are acquired to take advantage of bootstrapping often have:

Correct AnswerverifiedShow Answer

How should the gains and costs of mergers to the acquiring firm be measured?

Correct AnswerverifiedA merger generates an economic gain if t...View AnswerShow Answer

Shares of a corporation can, under certain circumstances, be priced at different amounts to different investors under the terms of a:

Correct AnswerverifiedShow Answer

For firms in a mature stage of life with free cash flow, do you accept the charge that there might be some actual incentive to waste cash?

Correct AnswerverifiedFirms with excess cash know that they mi...View AnswerShow Answer

Conglomerate mergers involve companies in:

Correct AnswerverifiedShow Answer

Which percentage of shareholder approval would be most associated with a shark-repellent strategy?

Correct AnswerverifiedShow Answer

A conglomerate merger is defined as the merger of two or more Fortune 500 companies.

Correct AnswerverifiedShow Answer

A typical poison pill may give existing shareholders the right to buy the company's shares at half price as soon as a bidder acquires more than 15% of the shares. The bidder is not entitled to the discount.

Correct AnswerverifiedShow Answer

The merger between Uptown Bank and Downtown Bank is an example of a:

Correct AnswerverifiedShow Answer

When a firm's management takes the firm private with the aid of substantial debt, it is known as a management:

Correct AnswerverifiedShow Answer

The cost of a merger equals the:

Correct AnswerverifiedShow Answer

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A merger occurs when an acquiring compan...
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A merger generates an economic gain if t...
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Firms with excess cash know that they mi...
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