Question 1

Outdoor Living has agreed to be acquired by New Adventures for $48,000 worth of New Adventures stock. New Adventures currently has 8,000 shares of stock outstanding at a price of $32 a share. Outdoor Living has 1,500 shares outstanding at a price of $43 a share. The incremental value of the acquisition is $21,000. What is the value of the merged firm?

Accepted Answer

A)  $85,500
B)  $256,000
C)  $277,000
D)  $320,500
E)  $341,500F) B) and E)
G) A) and E)

Question 2

The incremental cash flows of a merger can relate to changes in which of the following?
I. revenue
II. capital requirements
III. operating costs
IV. income taxes

Accepted Answer

A)  I and II only
B)  II, III, and IV only
C)  I, III, and IV only
D)  I, II, and III only
E)  I, II, III, and IVF) A) and E)
G) A) and B)

Question 3

If General Electric, a highly diversified company, were to acquire Ocean Freight Limited, the acquisition would be classified as a _____ acquisition.

Accepted Answer

A)  horizontal
B)  longitudinal
C)  conglomerate
D)  vertical
E)  integratedF) All of the above
G) A) and C)

Question 4

Empirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm. Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.

Accepted Answer

The empirical evidence strongly indicate...

Question 5

A potential merger which produces synergy:

Accepted Answer

A)  should be rejected due to the projected negative cash flows.
B)  should be rejected because the synergy will dilute the benefits of the merger.
C)  has a net present value of zero.
D)  creates value and therefore should be pursued.
E)  reduces the anticipated net income from the target firm.F) A) and D)
G) C) and D)

Question 6

George's Equipment is planning on merging with Nelson Machinery. George's will pay Nelson's shareholders the current value of their stock in shares of George's Equipment. George's currently has 4,600 shares of stock outstanding at a market price of $31 a share. Nelson's has 1,600 shares outstanding at a price of $38 a share. What is the value per share of the merged firm?

Accepted Answer

A)  $30.77
B)  $31.00
C)  $31.29
D)  $31.74
E)  $32.06F) A) and D)
G) D) and E)

Question 7

Firm B is being acquired by Firm A for $162,000 worth of Firm A stock. The incremental value of the acquisition is $4,600. Firm A has 8,500 shares of stock outstanding at a price of $36 a share. Firm B has 5,900 shares of stock outstanding at a price of $27 a share. What is the value per share of Firm A after the acquisition?

Accepted Answer

A)  $35.28
B)  $35.71
C)  $36.00
D)  $36.15
E)  $37.04F) All of the above
G) A) and E)

Question 8

Sleep Tight is acquiring Restful Inns for $52,500 in cash. Sleep Tight has 3,000 shares of stock outstanding at a market price of $38 a share. Restful Inns has 2,100 shares of stock outstanding at a market price of $24 a share. Neither firm has any debt. The incremental value of the acquisition is $1,700. What is the price per share of Sleep Tight after the acquisition?

Accepted Answer

A)  $36.92
B)  $37.30
C)  $37.87
D)  $39.19
E)  $39.29F) A) and E)
G) B) and C)

Question 9

If Paul's Hardware were to acquire Suburban Hardware, the acquisition would be classified as a _____ acquisition.

Accepted Answer

A)  horizontal
B)  longitudinal
C)  conglomerate
D)  vertical
E)  integratedF) A) and B)
G) B) and D)

Question 10

Princeton Enterprises is a diversified company. In addition to its primary business operations, the firm is also the sole shareholder of a wholly owned subsidiary. As part of its restructuring plan, Princeton has decided to implement an IPO offering for shares in the subsidiary. This offering is equivalent to a 25 percent ownership stake in the subsidiary. What is the distribution of these shares called?

Accepted Answer

A)  split-up
B)  equity carve-out
C)  countertender offer
D)  white knight transaction
E)  lockup transactionF) A) and B)
G) B) and E)

Question 11

The Cat Box acquired The Dog House. As part of this transaction, both firms ceased to exist in their prior form and combined to create an all-new entity, Animal World. Which one of the following terms best describes this transaction?

Accepted Answer

A)  divestiture
B)  consolidation
C)  tender offer
D)  spinoff
E)  conglomerationF) B) and E)
G) B) and D)

Question 12

Dressler, Inc., is planning on merging with Weston Foods. Dressler will pay Weston's shareholders the current value of its stock in shares of Dressler stock. Dressler's currently has 6,200 shares of stock outstanding at a market price of $30 a share. Weston's has 2,200 shares outstanding at a price of $28 a share. How many shares of stock will be outstanding in the merged firm?

Accepted Answer

A)  6,840 shares
B)  7,061 shares
C)  7,200 shares
D)  8,253 shares
E)  8,609 sharesF) B) and C)
G) A) and C)

Question 13

Which one of the following statements is correct?

Accepted Answer

A)  A spin-off frequently follows an equity carve-out.
B)  A split-up frequently follows a spin-off.
C)  An equity carve-out is a specific type of acquisition.
D)  A spin-off involves an initial public offering.
E)  A divestiture means that the original firm ceases to exist.F) B) and D)
G) C) and D)

Question 14

Family Travel Plans is the sole shareholder in its subsidiary, Traveler's Insurance Co. Family Travel Plans has decided to divest itself of its insurance operations and does so by distributing the shares in the subsidiary to the shareholders of Family Travel Plans. This distribution of shares is called a(n) :

Accepted Answer

A)  lockup transaction.
B)  bear hug.
C)  equity carve-out.
D)  spin-off.
E)  split-up.F) A) and C)
G) B) and D)

Question 15

The primary purpose of a flip-in provision is to:

Accepted Answer

A)  increase the number of shares outstanding while also increasing the value per share.
B)  dilute a corporate raider's ownership position.
C)  reduce the market value of each share of stock.
D)  give the existing corporate directors the sole right to remove a poison pill.
E)  provide additional compensation to any senior manager who loses his or her job as a result of a corporate takeover.F) A) and B)
G) All of the above

Question 16

Roger is a major shareholder in RB Industrial Supply. Currently, Roger is quite unhappy with the direction the firm is headed and is rumored to be considering an attempt to take over the firm by soliciting the votes of other shareholders. To head off this potential attempt, the board of RB Industrial Supply has decided to offer Roger $35 a share for all the shares he owns in the firm. The current market value per share is $32. This offer to purchase Roger's shares is commonly referred to as:

Accepted Answer

A)  a golden parachute.
B)  standstill payments.
C)  greenmail.
D)  a poison pill.
E)  a white knight.F) C) and D)
G) C) and E)

Question 17

A group of individual investors is in the process of acquiring all of the publicly-traded shares of OM Outfitters. Once the shares are acquired, they will no longer be publicly traded. Which of the following terms applies to this process?

Accepted Answer

A)  tender offer
B)  proxy contest
C)  going-private transaction
D)  leveraged buyout
E)  consolidationF) C) and E)
G) B) and C)

Question 18

Blasco Distributors has become a large conglomerate. Its board of directors recently concluded that the firm has become so large that it has lost its efficiency. The board further concluded that the firm could be both more efficient and more profitable if it were divided into three distinct and separate firms. The board presented this suggested to the firm's shareholders and those shareholders voted and agreed to divide the firm. Dividing this firm into separate entities is referred to as a(n) :

Accepted Answer

A)  lockup transaction.
B)  divestiture.
C)  equity carve-out.
D)  spin-off.
E)  split-up.F) A) and E)
G) C) and E)

Question 19

Johnson Manufacturers and Peabody Enterprises are both manufacturers of plastic products, such as plastic plates and silverware. These two firms have decided to work together to find a more efficient way to recycle rejected products so that any rejected material can be reused. Thus, each company is going to assign two of its engineers to this project and have agreed to share any and all costs incurred in this process. This project is an example of a:

Accepted Answer

A)  consolidation.
B)  merged alliance.
C)  joint venture.
D)  takeover project.
E)  strategic alliance.F) A) and B)
G) None of the above

Question 20

An acquisition completed simply to diversify a firm will:

Accepted Answer

A)  create excessive synergy in almost all situations.
B)  lower systematic risk and increase the value of the firm.
C)  benefit the firm by eliminating unsystematic risk.
D)  benefit the shareholders by providing otherwise unobtainable diversification.
E)  generally not add any value to the firm.F) None of the above
G) B) and D)

Exam 26: Mergers and Acquisitions

Correct Answer
verified

Correct Answer
verified

The primary purpose of a flip-in provision is to:

Correct Answer
verified

Correct Answer
verified

If General Electric, a highly diversified company, were to acquire Ocean Freight Limited, the acquisition would be classified as a _____ acquisition.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

An acquisition completed simply to diversify a firm will:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A group of individual investors is in the process of acquiring all of the publicly-traded shares of OM Outfitters. Once the shares are acquired, they will no longer be publicly traded. Which of the following terms applies to this process?

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Empirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm. Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.

Correct Answer
verified
The empirical evidence strongly indicate...
View Answer

If Paul's Hardware were to acquire Suburban Hardware, the acquisition would be classified as a _____ acquisition.

Correct Answer
verified

The incremental cash flows of a merger can relate to changes in which of the following? I. revenue II. capital requirements III. operating costs IV. income taxes

Correct Answer
verified

A potential merger which produces synergy:

Correct Answer
verified

Correct Answer
verified

The Cat Box acquired The Dog House. As part of this transaction, both firms ceased to exist in their prior form and combined to create an all-new entity, Animal World. Which one of the following terms best describes this transaction?

Correct Answer
verified

Exam 26: Mergers and Acquisitions

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The primary purpose of a flip-in provision is to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If General Electric, a highly diversified company, were to acquire Ocean Freight Limited, the acquisition would be classified as a _____ acquisition.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An acquisition completed simply to diversify a firm will:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A group of individual investors is in the process of acquiring all of the publicly-traded shares of OM Outfitters. Once the shares are acquired, they will no longer be publicly traded. Which of the following terms applies to this process?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Empirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm. Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.

Correct AnswerverifiedThe empirical evidence strongly indicate...View AnswerShow Answer

If Paul's Hardware were to acquire Suburban Hardware, the acquisition would be classified as a _____ acquisition.

Correct AnswerverifiedShow Answer

The incremental cash flows of a merger can relate to changes in which of the following? I. revenue II. capital requirements III. operating costs IV. income taxes

Correct AnswerverifiedShow Answer

A potential merger which produces synergy:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Cat Box acquired The Dog House. As part of this transaction, both firms ceased to exist in their prior form and combined to create an all-new entity, Animal World. Which one of the following terms best describes this transaction?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The empirical evidence strongly indicate...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified