4930
Which of the following are true about the Sherman Antitrust Act?
= prohibits business combinations that result in monopolies - prohibits business combinations resulting in a significant increase in the pricing power of a single firm - makes illegal all contracts unreasonably restraining trade
alliances and joint ventures are likely to receive more intensive scrutiny by regulators because of their tendency to be more anti competitive than M&As
false
the market share of the combined firms is rarely an important factor in determining whether a proposed transaction is likely to be considered anti competitive
false
the primary reason the sarbanes oxley act was passed was to eliminate insider trading
false
there are no state statutes affecting proposed takeovers
false
The purpose of the 1968 Williams Act was to
give target firm shareholders time to review takeover proposals
U.S. antitrust regulators are most concerned about what types of transaction?
horizontal mergers
Vertical mergers are likely to be challenged by antitrust regulators for all of the following reasons except for
the relevant market has many suppliers
European antitrust policies differ from those in the U.S. in what important way?
they focus on the impact on the competitors
if an investor initiates a tender offer, it must make a 14D filing with the SEC
true
states are not allowed to pass any laws that impose restrictions on interstate commerce or that conflict in any way with federal laws regulating interstate commerce
true
the williams act of 1968 consists of a series of amendments to the securities act of 1933, and it is intended to protect target firm shareholders from lighting fast takeovers in which they would not have enough time to adequately assess the value of an acquirer's offer
true
whenever an investor acquires 5% or more of a public company, it must disclose its intentions, the identities of all investors, their occupation, sources of financing, and the purpose of the acquisition
true
The primary forms of proxy contests are those for seats on the board of directors, those concerning management proposals, and those seeking to force management to take a particular action.
true
Antitakeover laws do not exist at the state level.
false
The Sarbanes-Oxley bill is intended to achieve which of the following:
- auditor independence - corporate responsibility - improved financial disclosure - increased penalties for fraudulent behavior
Which of the following represent important shortcomings of using industry concentration ratios to determine whether the combination of certain firms will result in an increase in market power?
- frequent inability to define what constitutes an industry - failure to measure ease of entry or exit for other firms - failure to account for foreign competition - failure to account properly for the distribution of firms of different sizes
Which of the following are used by antitrust regulators to determine whether a proposed transaction will be anti-competitive?
- market share - barriers to entry - number of substitute products
Which other types of legislation can have a significant impact on a proposed transaction?
- state antitakeover laws - state antitrust laws - federal benefit laws - federal and state environmental laws
All of the following are true about a consent decree except for
FTC studies indicate that consent decrees have historically been largely ineffectual in promoting competition
Corporate anti-takeover defenses are necessarily a sign of bad corporate governance
false
Corporate governance refers to the way firms elect CEOs
false
Dissident shareholders always undertake a tender offer to change the composition of a firm's board of directors
false
Which of the following are common takeover tactics?
- bear hugs - open market purchases - tender offers - litigation
In a tender offer, which of the following is true?
- both acquiring and target firms are required to disclose their intentions to the SEC - the target's management cannot advise its shareholders how to respond to a tender offer until it has disclosed information to the SEC
The control market is applicable when which of the following conditions are true?
- capital markets are illiquid - equity ownership is heavily concentrated - board members are largely insiders - ownership and control overlap
the market governance model is applicable when which of the following conditions are true?
- capital markets are liquid - equity ownership is widely dispersed - ownership and control are separate - board members are largely independent
The Securities Act of 1933 requires the registration of all securities issued to the public. Such registration requires which of the following disclosures:
- description of the firm;s properties and business - description of the securities - information about management - financial statements audited by public accountants
Which of the following basic principles on which the market model is based?
- management incentives should be aligned with those of shareholders and other major stakeholders - transparency of financial statements - equity ownership should be widely dispersed
Over the years, the US congress has transferred some of the enforcements of securities laws to organizations other than the SEC such as
- public stock exchanges - financial accounting standards board - public accounting oversight board - state regulatory agencies
Which of the following government agencies can discipline firms with inappropriate governance practices?
- securities and exchange commission -federal trade commission -the department of justice
Which of the following factors often affects hostile takeover bids?
- the takeover premium - the composition of the board of the target firm - the composition of the ownership of the target's stock - the target's bylaws
the incremental cash flows of a merger can relate to which of the following
- working capital - profits - capital spending - income taxes
Efficiencies rarely are considered by antitrust regulators in determining whether to accept or reject a proposed merger
false
Employee benefit plans seldom create significant liabilities for buyers
false
Which of the following are commonly considered alternative models of corporate governance?
-market model -control model
Executive stock option plans have little impact on the way management runs the firm.
false
Federal securities and antitrust laws are the only laws affecting corporate takeovers. Other laws usually have little impact.
false
The cost of capital formula can be generalized to include hybrid sources of funds available to firms such as convertible preferred and debt
true
The control model of corporate governance is applicable under all of the following conditions except for
equity ownership is widely dispersed
All of the following are true of the Williams Act except for
facilitates rapid takeovers over target companies
A standstill agreement prevents an investor who has signed the agreement from ever again buying stock in the target firm
false
A tender offer is a proposal made directly to the target firm's board as the first step leading to a friendly takeover.
false
About 40% of all proposed M&A transactions are disallowed by the US antitrust regulators, because they are believed to be anti competitive
false
purchasing the target firm's stock in the open market is a commonly used tactic to achieve all of the following except for
acquiring controlling interest in the target firm without making such actions public knowledge
When evaluating an acquisition, you should do which of the following?
apply the discount rate that is relevant to the incremental cash flows
All of the following are true of a proxy contest except for
are usually successful
Which of the following is not true about the variable growth valuation model?
assumes that the discount rate during the high and stable growth period
Which of the following statements best describes the business judgement rule?
board members are expected to conduct themselves in a manner that could reasonably be seen as being in the best interests of the shareholders
Which one of the following factors is not considered in calculating the firm's cost of capital?
book value of debt and equity
All of the following are true of the U.S. Foreign Corrupt Practices Act except for which of the following:
bribery is necessary if a US company is to win a contract that comprises more than 10% of its annual sales
for a firm having common and preferred equity as well as debt, common equity value can be estimated in which of the following ways?
by subtracting the market value of debt and the market value of preferred equity from the enterprise value of the firm
The zero growth model is a special case of what valuation model?
constant growth model
Foreign direct investment in U.S. companies that may threaten national security is regulated by which of the following:
defense production act
Which of the following is true of the equity valuation model?
discounts free cash flow to equity by the cost of equity
which of the following is true of the enterprise valuation model?
discounts free cash flow to the firm by the weighted average cost of capital
Golden parachutes are employee severance arrangements, which are triggered whenever a change in control takes place. They are generally held by a large number of employees at all levels of management throughout the firm.
false
Horizontal mergers are rarely rejected by antitrust regulators
false
In the US, the federal trade commission has the exclusive right to approve mergers and acquisitions if they are determined to be potentially anti competitive
false
In the US, the sherman act makes illegal all contracts, combinations and conspiracies, which "unreasonably" restrain trade. The act applies to all transactions and businesses engaging in both interstate and intrastate trade
false
It is possible to determine the equity value of the firm if you know the present value of free cash flow to the firm and the book value of the firm's outstanding shares.
false
Litigation is a tactic that is used only by acquiring firms
false
Most takeover attempts may be characterized as hostile bids.
false
Poison pills are a commonly used takeover tactic to remove the management and board of the target firm.
false
Proxy contests and tender offers are often viewed by acquirers as inexpensive ways to takeover another firm.
false
Purchasing target stock in the open market is a rarely used takeover tactic.
false
Stakeholders in a firm refer to shareholders only
false
Studies show that it is generally unnecessary to adjust the capital asset pricing model for the size of the firm
false
Tender offers always consist of an offer to exchange acquirer shares for shares in the target firm.
false
Tender offers apply only for share for share exchanges
false
The estimation of present value using the constant growth model involves the calculation of a terminal value
false
The final outcome of a hostile takeover is rarely affected by the composition of the target's stock ownership and how stockholders feel about management's performance
false
The takeover premium is the dollar or percentage amount the purchase price proposed for a target firm exceeds the acquiring firm's share price.
false
The threat of corporate takeover has little impact on how responsibly a corporate board and management manage a firm
false
The weighted average cost of capital consists only of debt and equity.
false
The weights used to calculate the weighted average cost of capital for a firm with common equity and debt only represent the book value of equity and debt.
false
U.S. and European Union antitrust law are virtually identical.
false
US antitrust regulators in determining if a proposed business combination is likely to be anti competitive consider only domestic competitors or foreign competitors with domestic operations
false
a beta coefficient is a measure of a firm's diversifiable risk
false
antitrust regulators rarely consider the impact of a proposed takeover on product and technical innovation
false
foreign competitors are not relevant to antitrust regulators when trying to determine if a merger of two domestic firms would create excessive pricing power
false
free cash flow to equity is calculated using operating income
false
free cash flow to the firm is calculated before debt and taxes
false
if free cash flow to the firm is expected to remain at $10 million indefinitely and the firm's cost of equity is .10, the present value of the firm is $100 million
false
market share is usually easy to define
false
mergers and acquisitions are subject to federal regulation only
false
negotiated agreements between the buyer and seller rarely have a provision enabling the parties to back out, if the proposed transaction is challenged by the FTC or SEC
false
Which of the following factors influences corporate governance practices?
institutional activism
Which one of the following factors is not considered in calculating the firm's cost of equity?
interest rate on corporate debt
Which is true of the following? A white knight
is a firm which is viewed by management as a more appropriate suitor than the bidder
which of the following is true? A hostile takeover attempt
is one that is resisted by the target's management
all of the following are true about the marginal tax rate for the firm except for
it is critical to use the effective tax rate in calculating after tax operating income in perpetuity
According the management entrenchment theory
management resistance to takeover attempts is an attempt to extend their longevity with the target firm
Which of the following is true about supervoting stock?
may have 10 to 100 times of the voting rights of other classes of stock
A collaborative arrangement is a term used by regulators to describe agreements among competitors for all of the following except for
mergers and acquisitions
A diligent buyer must ensure that the target is in compliance with the labyrinth of labor and benefit laws, including those covering all of the following except for
national security
the calculation of free cash flow to the firm includes all of the following except for
net income
All of the following are examples of antitakeover provisions commonly found in state statutes except for
short form merger provisions
The discounted cash flow method for valuing a firm adjusts for differences in the magnitude and timing of cash flows and for risk.
true
All of the following are true of the Hart-Scott-Rodino Antitrust Improvements Act except for
only the acquiring firm is required to file with the FTC
the calculation of free cash flow to equity includes all of the following except for
operating income
Which of the following is among the least regulated industries in the U.S.?
retailing
Xon Enterprises is attempting to take over Rayon Group. Rayon's shareholders have the right to buy additional shares at below market price if Xon (considered by Rayon's board to be a hostile bidder) buys more than 15 percent of Rayon's outstanding shares. What term applies to this antitakeover measure?
poison pill
All of the following are common takeover defenses except for
poison pills
the following takeover defenses are generally put in place by a firm before a takeover attempt is initiated
poison pills
studies show that which of the following combinations of corporate defenses can be most effective in discouraging hostile takeovers
poison pills and staggered boards
In determining whether a proposed transaction is anti-competitive, U.S. regulators look at all of the following except for
potential for job loss among target firm's employees
Which of the following is true about the variable growth model?
present value equals the discounted sum of the annual forecasts of cash flow plus the discounted value of the terminal value
which of the following factors is excluded from the calculation of free cash flow to the firm?
principal repayments
State "blue sky" laws are designed to
protect individual investors from investing in fraudulent securities offerings
Some of Acme Inc.'s shareholders are very dissatisfied with the performance of the firm's current management team and want to gain control of the board. To do so, these shareholders offer their own slate of candidates for open spaces on the firm's board of directors. Lacking the necessary votes to elect these candidates, they are contacting other shareholders and asking them to vote for their slate of candidates. The firm's existing management and board is asking shareholders to vote for the candidates they have proposed to fill vacant seats on the board. Which of the following terms best describes this scenario?
proxy contest
All of the following is true about proxy contests except for
proxy materials must be filed with the SEC immediately following their distribution to investors
All of the following factors are considered by U.S. antitrust regulators except for
purchase price for the target firm
the following takeover defenses are generally put in place by a firm after a takeover attempt is underway
standstill agreement
All of the following are commonly used takeover tactics, except for
tender offers
all of the following are true of tender offers except for
tender offers consist only of offers of cash for target stock
All of the following are true of antitrust lawsuits except for
the FTC files lawsuits in most cases they review
the cost of capital reflects all of the following except for
the book value of the firm's debt
A firm's leveraged beta reflects all of the following except for
the firm's cost of equity
which of the following is not true about the constant growth valuation model?
the firm's free cash flow is assumed to be unchanged in perpetuity
All of the following are true of poison pills except for
they are a new class of security
which of the following is true about so called shark repellants?
they are put in place to strengthen the board
. The cost of equity is the minimum financial return required by investors to invest in stocks of comparable risk.
true
A bear hug involves mailing a letter containing an acquisition proposal to the target's board without warning and demanding an immediate response.
true
A firm's beta is affected by the amount of debt a firm maintains relative to its equity.
true
A hostile tender offer is a takeover tactic in which the acquirer bypasses the target's board and management and goes directly to the target's shareholders with an offer to purchase their shares.
true
A no-shop agreement prohibits the takeover target from seeking other bids.
true
A proxy contest is one in which a group of dissident shareholders attempts to obtain representation on a firm's board by soliciting other shareholders for the right to vote their shares.
true
A risk-free rate of return is one for which the expected return is certain
true
A standstill agreement is one in which the target firm agrees not to solicit bids from other potential buyers while it is negotiating with the first bidder.
true
A successful proxy fight may represent a far less expensive means of gaining control over a target than a tender offer.
true
A target firm is unlikely to reject a bid without getting a "fairness" opinion from an investment banker stating that the offer is inadequate.
true
According to the capital asset pricing model, risk consists of both diversifiable and non-diversifiable components.
true
According to the management entrenchment hypothesis, takeover defenses are designed to protect the target firm's management from a hostile takeover
true
All materials in a proxy contest must be filed with the SEC before they are sent to shareholders.
true
An acquiring firm may attempt to limit the options of the target's senior management by making a formal acquisition proposal, usually involving a public announcement, to the board of the directors of the target.
true
An astute bidder should always analyze the target firm's possible defenses such as golden parachutes for key employees and poison pills before making a bid
true
Antitrust regulators take into account the likelihood that a firm would fail and exit a market if it is not allowed to merger with another firm
true
Beta is a measure of non-diversifiable risk.
true
Both public and private firms are subject to non-diversifiable risk.
true
By replacing the target's board members, proxy fights may be an effective means of gaining control without owning 51% of the target's voting stock.
true
Bylaws may provide for a staggered board, the inability to remove directors without cause, and supermajority voting requirements for approval of mergers.
true
Concern about their fiduciary responsibility and about stockholder lawsuits puts pressure on the target's board to accept the offer
true
Concern about their fiduciary responsibility to shareholders and shareholder lawsuits often puts pressure on a target firm's board of directors to accept an offer if it includes a significant premium to the target's current share price.
true
Corporate governance refers to a system of controls both internal and external to the firm that protects stakeholders' interests.
true
Despite the pressure of an attractive purchase price premium, the composition of the target's board greatly influences what the board does and the timing of its decisions
true
Environmental laws in the European Union are generally more restrictive than in the U.S.
true
Federal and state laws make it extremely difficult for a bidder to acquire a controlling interest in a target without such actions becoming public knowledge.
true
Free cash flow to the firm is also called enterprise cash flow
true
Friendly takeovers are negotiated settlements that are often characterized by bargaining, which remains undisclosed until the agreement has been signed.
true
Growth rates can be calculated based on the historical experience of the firm or industry
true
If an investor anticipates a future cash flow stream of five or ten years, she needs to use either a five- or ten- year Treasury bond rate as the risk-free rate.
true
In a one-tier offer, the acquirer announces the same offer to all target shareholders.
true
In a two-tiered offer, target shareholders typically received two offers, which potentially have different values.
true
In elections involving staggered or classified boards, only one group of board members is up for reelection each year.
true
In the absence of debt, measures the volatility of a firm's financial return to changes in the general market's overall financial return.
true
Insider trading involves buying or selling securities based on knowledge not available to the general public
true
Institutional activism has assumed a larger role in ensuring good corporate governance practices in recent years.
true
Interest payments are tax deductible to firms in the U.S.
true
Net debt is defined as all of the firm's interest bearing debt less the value of cash and marketable securities.
true
Poison pills represent a new class of securities issued by a company to its shareholders, which have no value unless an investor acquires a specific percentage of the firm's voting stock.
true
Poison pills represent a new class of stock issued by a company to its shareholders, usually as a dividend
true
Preferred stock exhibits some of the characteristics of long-term debt in that its dividend is generally constant and preferred stockholders are paid before common shareholders in the event the firm is liquidated
true
Public announcements of a proposed takeover are often designed to put pressure on the board of the target firm.
true
Some antitrust laws are usually quite similar to federal laws
true
The Herfindahl-Hirschman Index is a measure of industry concentration used by U.S. antitrust regulators in determining whether to accept or reject a proposed merger.
true
The Sherman Act makes illegal all contracts, combinations, and conspiracies that "unreasonably" restrain trade.
true
The US securities act of 1933 requires that all securities offered to the public must be registered with the government
true
The accumulation of a target firm's stock by arbitrageurs makes purchases of blocks of stock by the bidder easier.
true
The after-tax cost of borrowed funds to the firm is estimated by multiplying the pretax interest rate, i, by (1 -t), where t is the marginal tax rate for the firm
true
The capital asset pricing model is commonly used to estimate the cost of equity.
true
The constant growth model may be used to estimate the risk premium component of the cost of equity as an alternative to relying on historical information as is done in the capital asset pricing model
true
The constant growth valuation model is primarily applicable to firms in mature markets
true
The primary shortcoming of industry concentration ratios is the frequent inability of antitrust regulators to define accurately what constitutes an industry, the failure to reflect ease of entry or exit, foreign competition, and the distribution of firm size.
true
The projected cash flow of firms in highly cyclical industries can be distorted depending on where the firm is in the business cycle.
true
The requirements to be listed on most major public exchanges far exceed the auditor independence requirements of the Sarbanes-Oxley Act
true
The shareholder interests theory suggests that shareholders gain when management resists takeover attempts
true
The size factor used to adjust the capital asset pricing model serves as a proxy for factors such as smaller firms being subject to higher default risk and generally being less liquid than large capitalization firms.
true
The size of the target firm is the best predictor of the likelihood of being taken over by another firm.
true
The target firm's bylaws may provide significant hurdles for an acquiring firm
true
The threat of hostile takeovers is a factor in encouraging a firm to implement good governance practices.
true
The variable growth model would be most appropriate for valuing firms in the growth phase of their product life cycle
true
Transactions involving firms in different countries are complicated by having to deal with multiple regulatory jurisdictions in specific countries or regions.
true
Unlike the European Economic Union, a decision by U.S. antitrust regulators to block a transaction may be appealed in the courts.
true
Viewing preferred dividends as paid in perpetuity, the cost of preferred stock can be calculated as dividends per share of preferred stock divided by the market value of the preferred stock
true
When cash flow is temporarily depressed due to strikes, litigation, warranty claims, or other one-time events, it is generally safe to assume that cash flow will recover in the near term.
true
When the firm increases its debt in direct proportion to the market value of its equity, the level of the debt is perfectly correlated with the firm's market value.
true
a heavily concentrated market is one in which a single or a few firms control a disproportionately large share of the total market
true
a typical consent decree for firms involved in a merger requires the merging parties to divest overlapping businesses or to restrict anticompetitive practices
true
acquisitions involving companies of a certain size cannot be completed until certain information is supplied to the federal government and until a specific waiting period has elapsed
true
antitrust authorities may approve a proposed takeover even if the resulting combination will substantially increase market concentration if the target firm would go bankrupt if the takeover does not occur
true
antitrust laws exist to prevent individual corporations from assuming too much market power such that they can limit their output and raise prices without concern for how their competitors might react
true
federal antitrust laws exist to prevent individual corporations from assuming too much market power such that they can limit their output and raise prices without concern for any significant competitor reaction
true
if the regulatory authorities suspect that a potential transaction may be anti competitive, they will file a lawsuit to prevent completion of the transaction
true
in addition to market share, antitrust regulators consider barriers to entry, the number of product substitutes, and the degree of product differentiation
true
in calculating the weighted average cost of capital, the weights should be estimated using the market value of the target firms debt and equity
true
in the absence of debt, the unlevered beta measures the volatility of the firm's financial return to changes in the general stock markets overall return
true
some state anti takeover laws contain so called "fair price provisions" requiring that all target shareholders of a successful tender offer receive the same price as those who actually tendered their shares
true
under a consent decree, the regulatory authorities agree to approve a proposed transaction if the parties involved agree to take certain actions following closing
true
under federal law, states have the right to sue to block mergers they believe are anti competitive, even if the FTC or SEC does not challenge them
true
unlike the sherman act, which contains criminal penalties, the clayton act is a civil statute and allows private parties injured by the antitrust violations to sue in federal court for a multiple of their actual damages
true
us antitrust regulators may approve a horizontal transaction even if it results in the combined firms having substantial market share if it can be shown that significant cost efficiencies would result
true
whenever an investor accumulates 5% or more of a public company's stock, it must make a so called 13D filing with the SEC
true
whenever either the acquiring or the target's firm stock is publicly traded, the transaction is subject to the substantial reporting requirements of federal securities laws
true
