MGTCH23 3470
Which one of the following combinations of firms would benefit the most through the use of complementary resources?
A golf resort and a ski resort
A consolidation is the combining of firms such that:
A new firm is created and both the acquired and the acquiring firms cease to exist.
Which one of the following statements is correct?
A spin-off frequently follows an equity carve-out.
Which one of the following is most likely a good candidate for an acquisition that could benefit from the use of complementary resources?
A sports arena that is home only to an indoor hockey team
In the financial world, the term poison pill refers to:
A tactic to make unfriendly takeover attempts unappealing
Firm A acquired Firm B in a cash acquisition. The merger was a success and value was created. This incremental value was beneficial to the shareholders of:
Firm A only.
The value of firm B to firm A is equal to the value of:
Firm B as a stand-alone firm plus the synergy value.
A deal in which all publicly owned stock in a firm is replaced with complete equity ownership by a private group is called a:
Going-private transaction
A transaction involving only one firm, which results in a stock being delisted and no longer available to the public is a(n):
Going-private transaction
A targeted stock repurchase of the firm directed at a potential bidder to discourage an unfriendly takeover attempt is called (a):
Greenmail
The acquisition of a firm in the same industry as the bidder is called a:
Horizontal acquisition.
Which of the following would be listed as an argument against using an acquisition by tender offer as opposed to a merger? I. No shareholder meetings need to be held. II. The target firm's management and board of directors can be bypassed. III. A significant number of minority shareholders may hold out.
III only
________________, it is impossible for a tax-free acquisition to take place.
If an acquisition is being undertaken with cash
Which one of the following statements is correct?
If either an increase or a decrease in the level of production causes the average cost per unit to increase the firm is currently operating at its optimal size.
Which one of the following statements concerning taxes and acquisitions is correct?
In a taxable acquisition, the shareholders in the target firm are treated as though they sold their shares and any capital gains or losses will be realized
An attempt to gain control of a firm by soliciting a sufficient number of shareholder votes to replace the current board of directors is called a:
Proxy contest
Assume that 20% of the shareholders of ABC Co. are extremely unhappy with the company's management and would like to replace all of the senior executives. To do this, they need control over the board of directors. This situation has a high probability of leading to a:
Proxy contest
Which one of the following statements is correct concerning acquisition considerations?
Transaction costs and related expenses must be included in the acquisition analysis
Which of the following is NOT a source of acquisition gains from cost reduction?
Unused debt capacity
The value of target Firm B to acquiring Firm A is normally expressed as:
VB + V
A successful merger requires that the
Value of the whole exceeds the value of the sum of the parts.
The acquisition of a firm in a different production process stage than the bidder is called a:
Vertical acquisition.
Eat M Up is considering a hostile takeover of the Everyday Company. To prevent such an event, the Everyday Company scrambles to get the Good Guys Network to buy them. The Good Guys Network is referred to as the:
White Knight.
Which one of the following combination of firms is most apt to create synergistic benefits through their use of complementary resources?
a hotel and a convention center
Another common name for a poison pill takeover defense is ______________.
a share rights plan
One example of ______________ is called greenmail
a targeted repurchase agreement
Generous compensation plans paid to a firm's top management in the event of a takeover are called ___________.
golden parachutes
The management of Traynor Enterprises is fighting a takeover attempt led by one of its shareholders. To try and stop this takeover, management decides to offer the shareholder $50 a share if she will sell all of her shares in the firm. Traynor stock is currently priced at $36 a share. This offer is an example of:
greenmail
The payments made by a firm to repurchase shares of its outstanding stock from an individual investor in an attempt to eliminate a potential unfriendly takeover attempt are referred to as:
greenmail.
When one automaker acquires another automaker the acquisition is classified as a:
horizontal acquisition
Assume that both firm A and firm B formally agree to each put up $10 million to form firm C. The operations of firm C are restricted to conducting research and development activities for the benefit of firms A and B. Firm C is a _____ of firms A and B.
joint venture
A new company financed with funds from two existing firms for the purpose of working together on a project is called a(n):
joint venture.
An agreement between firms to create a separate, co-owned entity established to pursue a joint goal is called a:
joint venture.
Suppose the employees of Air Canada borrowed heavily to buy all of the firm's stock and take the company private. This would be an example of a(n) _______________.
leveraged buyout
In a(n) ____________, the managers of the firm purchase the shares outstanding in the open market and take the firm private
management buyout
When the existing management of a firm is involved in a going-private transaction financed primarily with borrowed funds, the transaction is frequently referred to as a:
management buyout.
The complete absorption of one company by another, where the acquiring firm retains its identity and the acquired firm ceases to exist, is called a __________.
merger
A firm is employing a _____________ if it sells its crown jewels as a takeover defense.
scorched earth policy
Corporate charter provisions allowing existing shareholders to purchase stock at some fixed price in the event of a hostile outside takeover attempt are called ___________________.
share rights plans
The distribution of shares in a subsidiary to existing parent company stockholders is called a(n):
spin-off.
If a bidding firm wishes to bypass the board of directors of the target firm and deal directly with the shareholders of the target firm, the bidding firm should attempt to acquire the target firm via a:
stock acquisition
If a firm makes an acquisition to exploit perceived opportunities in a new industry, it is expecting ____________________ as a result of the purchase
strategic benefits
Generally speaking, if an acquiring firm offers the target firm cash for its stock, it will be a _________ acquisition; if the acquirer offers its own shares in return for the target firm's stock, it will be a _____________ acquisition
taxable; tax-free
A public offer by one firm to directly buy the shares of another firm is called a ____________.
tender offer
The purchase accounting method requires that:
the assets of the target firm be recorded at their fair market value on the balance sheet of the acquiring firm
A golden parachute is:
the compensation paid to senior managers when the firm they work for is acquired by another firm.
Which of the following does NOT correctly complete this sentence: If cash is used to finance an acquisition, then _____________________.
the shareholders of the acquiring firm will be better off than if stock were used regardless of whether or not the acquisition is a success in terms of value
The value of a target firm to the acquiring firm is equal to:
the value of the target firm as a separate entity plus the incremental value derived from the acquisition.
Suppose General Motors buys up auto dealerships in all the major cities in Canada. This is an example of a _________________ acquisition
vertical
When a building supply store acquires a lumber mill they are doing a ______ acquisition
vertical
Kojack Film needs silver to make photographic film. To ensure that they will have an ample supply of silver at a reasonable price, the company purchases a silver mine. This is an example of a(n) ____________.
vertical acquisition
A potential merger that has synergy
creates value and therefore should be pursued.
When Firm A acquired Firm B, no incremental value was created but earnings per share increased. If the financial markets are astute, the price-earnings ratio of Firm A should ____ and the stock price of Firm A should _____.
decrease; remain constant
The primary purpose of a flip-over provision is to:
dilute a corporate raider's ownership position thereby increasing the cost of a takeover.
The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n):
equity carve-out.
Schottenheimer Industries has a great deal of cash but few investment opportunities. Montana, Inc., on the other hand, has many investment opportunities but finds it difficult to obtain financing. The acquisition of Montana by Schottenheifer would be made in order to ________.
exploit synergies
_____________ is a type of transaction which must be approved by a formal vote of the shareholders of the selling firm and which, when completed, leaves the selling firm as a corporate shell.
An acquisition of assets
Which of the following is NOT a source of acquisition gains from revenue enhancement?
Complementary resources
Which of the following are general requirements for an acquisition to be tax-free? I. The acquisition must involve two Canadian corporations subject to corporate income tax. II. The stockholders in the target firm must retain an equity position in the bidder. III. The acquirer must apply to the CRA for tax-free status prior to launching the acquisition bid. IV. The acquirer must offer cash to the equity holders of the acquired firm.
I and II only
Which of the following are given as common reasons why the management of a newly merged firm will opt to divest that firm of some of its operations? I. To raise cash II. To comply with antitrust regulations III. To avoid the taxes normally imposed on a stock acquisition IV. To comply with a government-imposed standstill agreement
I and II only
Which of the following have been suggested as reasons why the stockholders in acquiring firms may not benefit to any significant degree from an acquisition? I. The price paid for the target firm might equal that firm's total value II. Management may have priorities other than the interest of the stockholders III. The target firms tend to be much larger than the acquiring firms IV. The merger benefits may have been underestimated
I and II only
Which of the following refer to synergistic gains from merger due to revenue enhancement? I. Marketing gains II. Strategic benefits III. Unused debt capacity IV. Surplus funds
I and II only
Which of the following statements concerning acquisitions are correct? I. Being acquired by another firm is an effective method of replacing senior management. II. The net present value of an acquisition should have no bearing on whether or not the acquisition occurs. III. Acquisitions are often relatively complex from an accounting and tax point of view. IV. The value of a strategic fit is easy to estimate using discounted cash flow analysis.
I and III only
Which of the following are beneficial attributes of leveraged buyouts? I. Leveraged buyouts often create entrepreneurial incentives for managers. II. The required repayment of the debt used in the buyout induces reduced managerial efficiencies. III. Conflicts of interest between shareholders and managers are increased. IV. Bureaucratic obstacles are often eliminated
I and IV only
An acquisition of a firm through the purchase of shares of the outstanding stock: I. is frequently more expensive than if the two firms had just merged. II. can be accomplished without the involvement of the target firm's board of directors. III. can be accomplished without having the shareholders vote on the acquisition. IV. may be made either by circular bid or by stock exchange bid.
I, II, III, and IV
Synergistic benefits can often be realized by merging with a firm that: I. has an ineffective marketing program. II. has unused debt capacity. III. uses complementary resources. IV. has net operating losses.
I, II, III, and IV
Which of the following activities are commonly associated with takeovers? I. The acquisition of assets II. Proxy contests III. Management buyouts IV. Leveraged buyouts
I, II, III, and IV
Which of the following are possible sources of cash flow benefits derived from a merger? I. An improvement in the marketing of the firm's products II. Economy of scale benefits III. Better use of tax losses IV. Utilizing any unused debt capacity
I, II, III, and IV
Which of the following are reasons why a firm may want to divest itself of some of its assets? I. To raise cash II. To get rid of unprofitable operations III. To get rid of some assets received in an acquisition IV. To cash in on some profitable operations
I, II, III, and IV
A proposed acquisition may create synergy by: I. increasing the market power of the combined firm. II. improving the distribution network of the acquiring firm. III. providing the combined firm with a strategic advantage. IV. reducing the utilization of the acquiring firm's assets
I, II, and III only
Which of the following represent potential gains from an acquisition? I. The replacement of ineffective managers II. Lower costs per unit produced III. An increase in firm size so that diseconomies of scale are realized IV. Spreading of overhead costs
I, II, and IV only
The incremental cash flows of a merger can relate to changes in which of the following? I. Revenues II. Number of outstanding shares of stock III. Taxes IV. Capital requirements
I, III, and IV only
Which of the following refer to synergistic gains due to cost reductions in an acquisition? I. Complementary resources II. Marketing gains III. Economies of scale IV. Economies of vertical integration
I, III, and IV only
Which of the following is/are accurate with regards to the advantages or disadvantages in using a merger as a method of acquisition? I. An advantage of a merger is that it is legally complex. II. A disadvantage of a merger is that it requires shareholder approval of both firms. III. An advantage of a merger is that there is no need to transfer title to the individual assets of the acquired firm to the acquiring firm.
II and III only
Which of the following statements is/are true? I. In a successful takeover, the shareholders of the acquiring firm usually realize substantial gains. II. It appears that the gains reaped by target firms from tender offer takeovers are higher than the gains realized from mergers. III. On average, friendly mergers may be arranged at lower premiums than unfriendly tender offers
II and III only
Which of the following are features of the purchase method of accounting? I. The balance sheets of the acquirer and the acquired are just added together. II. Since the new firm is jointly owned by the shareholders of the old firms, no goodwill exists. III. The assets of the target firm must be shown at their fair market value on the books of the bidder. IV. The difference between the purchase price and the estimated fair market value of the net assets of the target firm must be classified as goodwill and recorded on the balance sheet.
III and IV only
Which of the following represent potential tax gains from an acquisition? I. A reduction in the level of debt II. An increase in surplus funds III. The use of net operating losses IV. An increased use of leverage
III and IV only
Which of the following types of acquisitions is (are) least likely to result in synergistic increases in value? I. Horizontal acquisitions II. Vertical acquisitions III. Conglomerate acquisitions
III only
Which of the following accurately completes the following statement: A tender offer:
Is followed up by a merger in many acquisitions
In general, a leveraged buyout:
Is used by current managers or financiers to take a firm private
The amount paid by an acquirer to the shareholders of the acquired firm that exceeds the stand-alone value is called the:
Merger premium.
Which of the following is NOT a correct statement of a reason why computation of NPV in a merger or an acquisition may be complicated?
Mergers and acquisitions are sometimes friendly
A financial device designed to make unfriendly takeover attempts financially unappealing, if not impossible, is called (a):
Poison pill
Synergy is defined as the:
Positive incremental net gain associated with the combination of two firms.
A contract that limits the holdings of a bidder to a minority stake in the target firm is called a:
Standstill agreement
Which of the following is a correct statement?
Stockholders can achieve diversification on their own
A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:
Supermajority amendment.
Studies of acquisitions and mergers suggest that shareholders of the:
Target firm have the most to gain from a merger.
The ABC Company contacts the shareholders of XYZ Company and offers to buy their shares at a premium. This is an illustration of a:
Tender offer
A horizontal merger is the acquisition of a firm
That competes in the same industry as the acquiring firm
Which one of the following statements is correct?
The management of an acquiring firm may put itself at risk of losing control of the firm if they do acquisitions using shares of stock
Which of the following is a case in which tax gains are used as a justification for purchasing another firm?
The target firm has unused net operating losses that can be used by the bidder
Which one of the following is a characteristic of an acquisition by stock?
The target firm's management can be bypassed by the use of a tender offer
Which of the following statements is false?
There will typically be a gain in an acquisition if the target firm's management is better than the management of the acquiring firm
The purpose of a proxy contest is for a group of shareholders to:
accumulate sufficient votes to gain controlling seats on the board of directors
In a merger the
acquiring firm retains its name and legal status
The primary difference between a merger and a consolidation is that the _____ firm continues to exist in a _____ but not in a _____.
acquiring firm; merger; consolidation
A consolidation is defined as a merger wherein
both the acquiring firm and the acquired firm cease to exist
Suppose Ford acquires K-Mart. This would be an example of a _____________ acquisition.
conglomerate
A merger in which an entirely new firm is created, with both the acquired and acquiring firms ceasing to exist, is called a _________________.
consolidation
