Question 1

Which statement best describes mergers?

Accepted Answer

A)  Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes. Thus, firms with excess cash rarely undertake mergers.
B)  The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations, and the higher the probability that the merger will be completed.
C)  Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger.
D)  Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what's probably a lower cost, diversification benefits are generally not a valid motive for a publicly held firm.E) None of the above
F) A) and B)

Question 2

Saskatchewan Corp.,with a book value of $10 million and a market value of $12 million,has merged with Alberta Corp.,with a book value of $10 million and a market value of $11 million and a price of $11 million.Under the purchase method,what will be the total assets on the book of the new merged firm?

Accepted Answer

A)  $26 million
B)  $19 million
C)  $20 million
D)  $39 millionE) A) and B)
F) All of the above

Question 3

A taxable merger offer is one where the acquiring company offers to purchase the target company with cash.However,the same deal is not taxable if the merger is paid by exchanging stocks.Such nontaxable bids should be more popular by far.

Accepted Answer

A) True 
 B)False

Question 4

Alberta Corp.,with a book value of $40 million and a market value of $45 million,has merged with Ontario Corp.,with a book value of $26 million and a market value of $28 million at a price of $30 million.Under the purchase method,what will be the total assets on the book of the new merged firm?

Accepted Answer

A)  $70 million
B)  $66 million
C)  $88 million
D)  $89 millionE) A) and B)
F) A) and C)

Question 5

By examining stock prices around merger announcement dates,event studies provide inconclusive results that mergers benefit only targets,not acquirers.

Accepted Answer

A) True 
 B)False

Question 6

Which statement best describes a merger concept?

Accepted Answer

A)  A conglomerate merger is one where a firm combines with another firm in the same industry.
B)  Regulations in Canada prohibit acquiring firms from using common shares to purchase another firm.
C)  Defensive mergers are designed to make a company less vulnerable to a takeover.
D)  The corporate valuation method and the equity residual method, even properly applied, produce different results.E) All of the above
F) A) and B)

Question 7

Dunbar Hardware,a national hardware chain,is considering purchasing a smaller chain,Eastern Hardware.Dunbar's analysts project that the merger will result in incremental free flows and interest tax savings with a combined present value of $72.52 million,and they have determined that the appropriate discount rate for valuing Eastern is 16%.Eastern has 4 million shares outstanding and no debt.Eastern's current price is $16.25.What is the maximum price per share that Dunbar should offer?

Accepted Answer

A)  $16.25
B)  $16.97
C)  $17.42
D)  $18.13E) None of the above
F) A) and B)

Question 8

Which of the following is correct regarding the most appropriate discount rate to be used in valuing the targeted firm?

Accepted Answer

A)  The appropriate discount rate to be used when calculating the NPV of a target company is the cost of equity of the acquiring firm.
B)  The appropriate discount rate to be used when calculating the NPV of a target company is the cost of debt of the target company.
C)  The appropriate discount rate to be used when calculating the NPV of a target company is the cost of equity of the target company.
D)  The appropriate discount rate to be used when calculating the NPV of a target company is the cost of junk bond debt of the target company.E) C) and D)
F) A) and B)

Question 9

What is one of the actions that CANNOT help managers defend against a hostile takeover?

Accepted Answer

A)  establishing a poison pill provision
B)  granting lucrative golden parachutes to senior managers
C)  establishing a super-majority provision in the company's bylaws to raise the percentage of the board of directors that must approve an acquisition from 50% to 75%
D)  changing the voting procedures for the board election from a noncumulative to a cumulative oneE) B) and C)
F) A) and B)

Question 10

Since the primary rationale for any operating merger is synergy,in planning such mergers the development of accurate pro forma cash flows is the single most important action.

Accepted Answer

A) True 
 B)False

Question 11

A shareholder rights plan allowing existing shareholders to buy or sell shares at very attractive prices provides the acquirer an inexpensive way for takeovers.

Accepted Answer

A) True 
 B)False

Question 12

Since a manager's central goal is to maximize the firm's common share price,any merger offer that provides shareholders with significant gains over the current share price will be approved by the current management team.

Accepted Answer

A) True 
 B)False

Exam 23: Mergers,Acquisitions,and Restructuring

By examining stock prices around merger announcement dates,event studies provide inconclusive results that mergers benefit only targets,not acquirers.

Correct Answer
verified

Correct Answer
verified

A shareholder rights plan allowing existing shareholders to buy or sell shares at very attractive prices provides the acquirer an inexpensive way for takeovers.

Correct Answer
verified

Which statement best describes mergers?

Correct Answer
verified

Correct Answer
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A taxable merger offer is one where the acquiring company offers to purchase the target company with cash.However,the same deal is not taxable if the merger is paid by exchanging stocks.Such nontaxable bids should be more popular by far.

Correct Answer
verified

What is one of the actions that CANNOT help managers defend against a hostile takeover?

Correct Answer
verified

Alberta Corp.,with a book value of $40 million and a market value of $45 million,has merged with Ontario Corp.,with a book value of $26 million and a market value of $28 million at a price of $30 million.Under the purchase method,what will be the total assets on the book of the new merged firm?

Correct Answer
verified

Which statement best describes a merger concept?

Correct Answer
verified

Which of the following is correct regarding the most appropriate discount rate to be used in valuing the targeted firm?

Correct Answer
verified

Since a manager's central goal is to maximize the firm's common share price,any merger offer that provides shareholders with significant gains over the current share price will be approved by the current management team.

Correct Answer
verified

Since the primary rationale for any operating merger is synergy,in planning such mergers the development of accurate pro forma cash flows is the single most important action.

Correct Answer
verified

Exam 23: Mergers,Acquisitions,and Restructuring

By examining stock prices around merger announcement dates,event studies provide inconclusive results that mergers benefit only targets,not acquirers.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A shareholder rights plan allowing existing shareholders to buy or sell shares at very attractive prices provides the acquirer an inexpensive way for takeovers.

Correct AnswerverifiedShow Answer

Which statement best describes mergers?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A taxable merger offer is one where the acquiring company offers to purchase the target company with cash.However,the same deal is not taxable if the merger is paid by exchanging stocks.Such nontaxable bids should be more popular by far.

Correct AnswerverifiedShow Answer

What is one of the actions that CANNOT help managers defend against a hostile takeover?

Correct AnswerverifiedShow Answer

Alberta Corp.,with a book value of $40 million and a market value of $45 million,has merged with Ontario Corp.,with a book value of $26 million and a market value of $28 million at a price of $30 million.Under the purchase method,what will be the total assets on the book of the new merged firm?

Correct AnswerverifiedShow Answer

Which statement best describes a merger concept?

Correct AnswerverifiedShow Answer

Which of the following is correct regarding the most appropriate discount rate to be used in valuing the targeted firm?

Correct AnswerverifiedShow Answer

Since a manager's central goal is to maximize the firm's common share price,any merger offer that provides shareholders with significant gains over the current share price will be approved by the current management team.

Correct AnswerverifiedShow Answer

Since the primary rationale for any operating merger is synergy,in planning such mergers the development of accurate pro forma cash flows is the single most important action.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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