Chapter 7.1 Test

Internal product development is often viewed as a. carrying a high risk of failure. b. the only reliable method of generating new products for the firm. c. a quicker method of product launch than acquisition of another firm. d. critical to the success of biotech and pharmaceutical firms.

a

Researchers have found that shareholders of acquired firms often a. earn above-average returns. b. earn below-average returns. c. earn close to zero as a result of the acquisition. d. are not affected by the acquisition.

a

Without effective due diligence the a. acquiring firm is likely to overpay for an acquisition. b. firm may miss its opportunity to buy a well-matched company. c. acquisition may deteriorate into a hostile takeover, reducing the value creating potential of the action. d. firm may be unable to act quickly and decisively in purchasing the target firm.

a

A primary reason for a firm to pursue an acquisition is to a. avoid increased government regulation. b. achieve greater market power. c. exit a hyper-competitive market. d. achieve greater financial returns in the short run.

b

A(an) ____ occurs when one firm buys a controlling, or 100% interest, in another firm. a. merger b. acquisition c. spin-off d. restructuring

b

Compared to internal product development, acquisitions allow a. immediate access to innovations in mature product markets. b. more accurate prediction of return on investment. c. slower market entry. d. more effective use of company core competencies.

b

Currently, the rationale for making an acquisition includes each of the following EXCEPT a. To increase market power. b. To decrease taxes paid by shareholders. c. To overcome entry barriers. d. To increase diversification.

b

In a merger a. one firm buys controlling interest in another firm. b. two firms agree to integrate their operations on a relatively coequal basis. c. two firms combine to create a third separate entity. d. one firm breaks into two firms.

b

Market power is derived primarily from the a. core competencies of the firm. b. size of a firm and its resources and capabilities. c. quality of a firm's top management team. d. depth of a firm's strategy.

b

When managers become overly focused on making acquisitions, it is a. because the skills of top executives are better used in making acquisitions than they are in daily organization operations. b. because it is more fun to do deals than to run the company. c. due to pressure from major stakeholders to diversify the firm. d. because acquisitions are a quick way to improve the financial standing of the firm.

b

According to the chapter Strategic Focus, because of the high levels of uncertainty associated with ____________a number of pharmaceutical companies use ____________to gain access to new products. a. acquisitions; internal product development b. horizontal acquisitions; unrelated diversification c. internal product development; acquisitions d. diversification; internal product development

c

Due diligence includes all of the following activities EXCEPT assessing a. differences in firm cultures. b. tax consequences of the acquisition. c. the level of private synergy between the two firms. d. financing for intended transaction.

c

Private synergy a. occurs in most related acquisitions and allows firms to see increased returns. b. is frequently achieved in conglomerates. c. is not easy for competitors to understand and imitate. d. is assessed by managers during the due diligence process.

c

There are few true mergers because a. few firms have complementary resources. b. integration problems are more severe than in outright acquisitions. c. one firm usually dominates in terms of market share, size, or value of assets. d. of managerial resistance. True mergers result in significant managerial-level layoffs.

c

Each of the following is a rationale for acquisitions EXCEPT a. achieving greater market power. b. overcoming significant barriers to entry. c. increasing speed of market entry. d. positioning the firm for a tactical competitive move.

d

One problem with becoming too large is that large firms a. become excessively diverse and have difficulty focusing on strategic goals. b. tend to have inadequate financial controls. c. become attractive takeover targets. d. usually increase bureaucratic controls.

d

Problems associated with acquisitions include all of the following EXCEPT a. Managers overly focused on acquisitions. b. Integration difficulties. c. Large or extraordinary debt. d. Excessive time spent on the due diligence process.

d

Research has shown that horizontal acquisitions a. tend to have disappointing financial results in the long run. b. are being replaced by virtual acquisitions. c. result in lower levels of performance than unrelated acquisitions. d. are able to use activity sharing to successfully create economies of scope.

d

The purchasing of firms in the same industry is called: a. unrelated diversification. b. vertical integration. c. networking the organization. d. horizontal acquisition.

d

When a firm acquires its supplier, it is engaging in a(an) a. merger. b. unrelated acquisition. c. hostile takeover. d. vertical acquisition.

d