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1.
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Which of the following is not a characteristic of the current merger boom? 1
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  Horizontal consolidation with significant potential for cost synergies.
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Subprime losses incurred by many financial institutions..
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The use by acquirers of existing cash and borrowed money (after-tax cost) to purchase the (relatively higher cost) equity of acquired companies.
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Much lower acquisition premiums being initially paid.
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2.
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An example of a horizontal merger is 2
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Wholesaler combines with a retailer.
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An electronic company merges with an insurance company.
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Combining of two airlines.
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Combining of a candy company and a sugar plantation.
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3.
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Which of the following is true regarding mergers? 2
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The larger company is usually the acquirer.
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The larger company is always the acquirer.
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The smaller company is usually the acquirer.
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The smaller company is always the acquirer.
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4.
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Which of the following best illustrates an example of a horizontal merger? 2
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Compaq merging with Intel.
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Compaq merging with McDonald's
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Compaq merging with Hewlett Packard.
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Compaq merging with plastic producers.
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5.
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A candy manufacturing company merging with a sugar processing company would be an example of a 2
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Horizontal merger.
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Vertical merger.
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Diagonal merger.
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Conglomerate merger.
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6.
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All of the following are true of mergers except 2
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Mergers are legally straightforward.
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Approval by shareholder vote of each firm involved in the merger is required.
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The acquiring firm maintains its name and identity in a merger.
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A merger may never result from a public offer to the shareholders of the target firm to buy its shares directly.
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7.
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The merger of Exxon and Mobil would be categorized as a 2
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Diversifying merger.
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Conglomerate merger.
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Horizontal merger.
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Vertical merger.
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8.
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What is meant by “due diligence”? 4
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An agreement that is assumed by each company involved in the merger to give a 100% effort to maintaining profitability after the merger.
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Consideration of an adequate (thorough) amount of information before doing a deal.
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It is a term used in jobs with contracts involved.
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It is a method for negotiating an acquisition.
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9.
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What benefit(s) might a merger bring? 12
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Growth.
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Reduction of risk.
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Growth and reduction of risk.
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Anti-trust action.
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10.
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A good take-over candidate for a merger includes all the following except 15
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A market price of stock that is considerably lower after the merger.
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A cash rich business.
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A company with significant growth potential.
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A company with a low debt-to equity ratio.
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11.
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In a merger, if common stock is exchanged, what would be the result(s)?Tax-free exchange (Yes/No)? EPS (increase/decrease) 15
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Yes Increase
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Yes Decrease
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No Increase
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No Decrease
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12.
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In an effort to provide guidelines as to what type of business combinations would and would not be challenged in antitrust actions, the Justice Department developed the 15
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Concentration ratio
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Herfindahl-Hirshman Index
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Lerner Index
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Rothschild Index
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13.
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When choosing a merger over an acquisition of stock to accomplish a business combination, which of the following is irrelevant to the decision? 14
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Having to deal directly with shareholders in an acquisition of stock.
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Failure by some minority shareholders to accept a tender offer.
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Resistance to an acquisition by the target's management with a consequent increase in the stock price.
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Whether the companies are in the same industry.
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14.
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Which of the following statements about acquisition of stock through tender offers is false? 14
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Shareholder meetings do not need to be held.
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A vote is not required.
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The acquiring firm directly deals with the target firm's stockholders.
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All of the outstanding stock of the target firm must be tendered.
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15.
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The synergy of a business combination can be determined by 13
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Calculating the change in revenue minus the change in cost.
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Calculating the change in revenue minus the change in taxes.
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Using the risk adjusted discount rate to discount the incremental cash flows of the newly formed entity.
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Using the risk adjusted discount rate to discount the change in revenues of the newly formed entity.
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16.
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Which of the following will reduce average production costs following a merger? 13
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A conglomerate merger.
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The existence of economies of scale.
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A vertical merger.
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Net operating losses of an acquired firm.
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17.
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All of the following are potential sources of tax savings in an acquisition except 13
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Economies of scale.
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Net operating losses.
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Unused debt capacity.
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Surplus funds of the acquiring firm.
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18.
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The advantage of a tender offer in a corporate takeover is that 14
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Target shareholders have less time to evaluate the offer.
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Target management has less time to organize a defense.
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The failing company doctrine might otherwise prohibit the combination.
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It is exempt from the Clayton Act.
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19.
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A corporate takeover may be attempted through a proxy contest. Which of the following is an SEC requirement concerning a proxy contest? 14
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The issuer of a proxy statement must file a copy with the SEC before it is mailed to shareholders.
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The issuer of a proxy statement must file a copy with the SEC after it is mailed to shareholders.
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The offer to shareholders to buy their shares must be held open for at least 20 business days.
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Shareholders may not grant the proxy contestants a power of attorney
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20.
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Which company(s) could Company A with 40% market share merge with without having the likelihood of challenge for antitrust violation become “likely”?Fast-Food Industry Market Share 16
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Company X 30%
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Company Y 4%
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Company Z 1%
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Company W 25%
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21.
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What is the threshold for tax-free deals? 19
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0.05
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0.25
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50%+1 share
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0.8
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22.
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Which of the following best describes an effective merger?A. B. C. D. 19
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1 + 1 < 2
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1 + 1 > 2
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1 + 1 = 2
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1 + 1 > 0
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23.
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Under M & A percent rules the threshold when the public must be notified of the purchaser intent is 19
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0.05
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15 û 25$
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50% + 1
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0.8
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24.
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Which of the following is not a reason for the objective of diversification within a merger? 20
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To avoid the cyclical effect of a single industry.
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To minimize the impact of adverse conditions in a particular market.
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To be able to participate in new growth areas.
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To eliminate overcapacity.
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25.
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When the value per share is based on historical cost rather than current value it is 23
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Net working capital per share
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Market price of the stock
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Book value per share
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Earnings per share
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26.
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In financing a merger the advantages of giving stock include all the following except 26
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No cash or financing requirement for the acquirer.
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Quick and simple terms of document preparation.
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Dilution of ownership/control.
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Target holders share the risk of acquisition.
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27.
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Advantages of leverage include all the following except 28
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Interest payments lower earnings.
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There is a lack of dilution.
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Increased return to shareholders.
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Increased expense is tax deductible.
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28.
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W Company buys B Company. W Company’s stock sells for $75 per share while B’s stock sells for $45. As per the merger terms, W offers $50 per share. What is the exchange ratio? 31
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29.
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A defensive measure used by the target company when the target company buys back the stock accumulated by the raider at a premium price is 38
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Poison pill.
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Green mail.
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Golden parachute.
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White knight.
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30.
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Which of the following defense maneuvers involves finding a third party who is willing to pay a higher premium, typically with “friendlier” intentions than the raider? 38
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Greenmail.
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Flip-over rights.
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White knight.
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Crown jewels.
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31.
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Adjusted earnings are net income adjusted for 39
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Unusual nonrecurring revenue and expenses
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Unusual nonrecurring gains
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Inflation
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Discount rate
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32.
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An approach to valuation that is based on values of comparable companies in the industry and may establish the companies value based on actual sales that are indicative of the company’s current value which is: 39
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Earnings (or cash flow)
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Market comparison
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Assets
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Industrial outlook
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33.
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A business is worth the discounted value of future cash earnings plus the discounted value of the expected selling price. Which of the following used this concept? 43
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Capitalization of earnings method
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Excess earnings return on assets method
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Discount cash flow method
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Adjusted net assets method
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34.
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A common mistake in valuing the firm to be acquired in a business combination is 43
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Using market values in the valuation.
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Including incremental cash flows in the valuation.
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Using the acquiring firm's discount rate when valuing the incremental cash flows.
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Including all related transaction costs associated with an acquisition.
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35.
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The appropriate discount rate to use in valuing a business combination is the 43
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Combined firm's cost of debt.
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Acquiring firm's weighted average cost of capital.
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Acquiring firm's cost of equity.
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Combined firm's cost of equity.
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36.
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In assigning values to individual assets acquired and liabilities under the purchase method the assumed guidelines allow for the following except 50
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Inventories.
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Goodwill.
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Receivables.
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Marketable securities.
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37.
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If liabilities are assumed in a purchase the difference between the fixed rate of debt securities and the present yield rate for comparable securities is reflected as 50
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Premium or discount.
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Earnings.
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Initial investment.
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Amortization.
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38.
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The Q ratio of a firm equals 49
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Market value of the firm's securities ? Replacement cost of its assets.
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Market value of the firm's securities ? Book value of its assets.
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Book value of its assets ? Market value of the firm's securities.
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Book value of its assets ? Market value of its assets.
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39.
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A firm is most likely to be a bargain for an acquirer if 49
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Its q ratio is greater than one.
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Its q ratio is less than one.
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The replacement cost of its assets is less than the value of the firm's securities.
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The combination is more expensive than internal expansion.
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40.
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Which of the following is true regarding the identities of the former companies (Company A and B) after a consolidation? 50
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Companies A and B keep their identity while company C is simultaneously formed.
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Companies A and B combine to create a new company, company C. In other words neither company legally survives.
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The acquiring company survives while the other one legally disappears.
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The larger company usually maintains its identity while the smaller one legally disappears
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