4066

Proxy contests and tender offers are often viewed by acquirers as inexpensive ways to takeover another firm. True or False

false

Tender offers always consist of an offer to exchange acquirer shares for shares in the target firm. True or False

false

1. A leveraged buyout involves the purchase of a company financed primarily by debt. True or False

true

1. 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 or False

true

11. The threat of hostile takeovers is a factor in encouraging a firm to implement good governance practices.

true

13. Deregulated industries often experience an upsurge in M&A activity shortly after regulations are removed. True or False

true

14. Because of hubris, managers of acquiring firms sometimes believe their valuation of a target firm is superior to the market's valuation. Under these circumstances, they often end up overpaying for the firm. True and False

true

2. 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 or False

true

According to the management entrenchment hypothesis, takeover defenses are designed to protect the target firm's management from a hostile takeover. True or False

true

All materials in a proxy contest must be filed with the SEC before they are sent to shareholders. True or False

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 or False

true

The shareholder interests theory suggests that shareholders gain when management resists takeover attempts. True or False

true

size of the target firm is the best predictor of the likelihood of being taken over by another firm

true

5. The control model of corporate governance is applicable under all of the following conditions except for a. Capital markets are illiquid b. Board members are largely insiders c. Ownership and control overlap d. Equity ownership is widely dispersed e. A, B, & D only

d. Equity ownership is widely dispersed

11. Which of the following are used by antitrust regulators to determine whether a proposed transaction will be anti-competitive? a. Market share b. Barriers to entry c. Number of substitute products d. A and B only e. A, B, and C

e. A, B, and C

6. Which of the following are the basic principles on which the market model is based? a. Management incentives should be aligned with those of shareholders and other major stakeholders b. Transparency of financial statements c. Equity ownership should be widely dispersed d. A & B only e. A, B, and C only

e. A, B, and C only

10. 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? a. Frequent inability to define what constitutes an industry b. Failure to measure ease of entry or exit for other firms c. Failure to account for foreign competition d. Failure to account properly for the distribution of firms of different sizes e. All of the above

e. All of the above

13. Which of the following factors often affects hostile takeover bids? a. The takeover premium b. The composition of the board of the target firm c. The composition of the ownership of the target's stock d. The target's bylaws e. All of the above

e. All of the above

12. Operating synergy consists of economies of scale and scope. Economies of scale refer to the spreading of variable costs over increasing production levels, while economies of scope refer to the use of a specific asset to produce multiple related products or services. True or False

false

15. During periods of high inflation, the market value of assets is often less than their book value. This often creates an attractive M&A opportunity. True or False

false

Corporate governance refers to the way firms elect CEOs. True or False

false

1. Which of the following are not true about economies of scale? a. Spreading fixed costs over increasing production levels b. Improve the overall cost position of the firm c. Most common in manufacturing businesses d. Most common in businesses whose costs are primarily variable e. Are common to such industries as utilities, steel making, pharmaceutical, chemical and aircraft manufacturing

D. most common in businesses whose costs are primarily variable

15. Purchasing the target firm's stock in the open market is a commonly used tactic to achieve all of the following except for a. Acquiring a controlling interest in the target firm without making such actions public knowledge. b. Lowering the average cost of acquiring the target firm's shares c. Recovering the cost of an unsuccessful takeover attempt d. Obtaining additional voting rights in the target firm e. Strengthening the effectiveness of proxy contests

a. Acquiring a controlling interest in the target firm without making such actions public knowledge.

14. All of the following are true of a proxy contest except for a. Are usually successful b. Are sometimes designed to replace members of the board c. Are sometimes designed to have certain takeover defenses removed d. May enable effective control of a firm without owning 51% of the voting stock e. Are often costly

a. Are usually successful

7. Which of the following statements best describes the business judgment rule? a. Board members are expected to conduct themselves in a manner that could reasonably be seen as being in the best interests of the shareholders. b. Board members are always expected to make good decisions. c. The courts are expected to "second guess' decisions made by corporate boards. d. Directors and managers are always expected to make good decisions. e. Board decisions should be subject to constant scrutiny by the courts.

a. Board members are expected to conduct themselves in a manner that could reasonably be seen as being in the best interests of the shareholders.

4. The hubris motive for M&As refers to which of the following? a. Explains why mergers may happen even if the current market value of the target firm reflects its true economic value b. The ratio of the market value of the acquiring firm's stock exceeds the replacement cost of its assets c. Agency problems d. Market power e. The Q ratio

a. Explains why mergers may happen even if the current market value of the target firm reflects its true economic value

9. All of the following is true about proxy contests except for a. Proxy materials must be filed with the SEC immediately following their distribution to investors b. The names and interests of all parties to the proxy contest must be disclosed in the proxy materials c. Proxy materials may be distributed by firms seeking to change the composition of a target firm's board of directors d. Proxy materials may be distributed by the target firm seeking to influence how their shareholders vote on a particular proposal e. Target firm proxy materials must be filed with the SEC.

a. Proxy materials must be filed with the SEC immediately following their distribution to investors

3. Which of the following is not true of strategic realignment? a. May be a result of industry deregulation b. Is rarely a result of technological change c. Is a common motive for M&As d. A and C only e. Is commonly a result of technological change

b. Is rarely a result of technological change

12. According to the management entrenchment theory, a. Management resistance to takeover attempts is an attempt to increase the proposed purchase price premium b. Management resistance to takeover attempts is an attempt to extend their longevity with the target firm c. Shareholders tend to benefit when management resists takeover attempts d. Management attempts to maximize shareholder value e. Describes the primary reason takeover targets resist takeover bids

b. Management resistance to takeover attempts is an attempt to extend their longevity with the target firm

2. Which of the following is not true of unrelated diversification? a. Involves buying firms outside of the company's primary lines of business b. Involves shifting from a firm's core product lines into those which are perceived to have higher growth potential c. Generally results in higher returns to shareholders d. Generally requires that the cash flows of acquired businesses are uncorrelated with those of the firm's existing businesses e. A and D only

c. Generally results in higher returns to shareholders

8. Which of the following is among the least regulated industries in the U.S.? a. Defenses b. Communications c. Retailing d. Public utilities e. Banking

c. Retailing