III MBA[ ] Semester V Elective:Mergers and Acquisitions-552W1 Multiple Choice Questions.

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Dr.G.R.Damodaran College of Science

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Semester V

Elective:Mergers and Acquisitions-552W1 Multiple Choice Questions.

1. Market for corporate control includes the following:. (I) Mergers. (II) Spin-offs and divestitures. (III) Leveraged buyouts (LBOs). (IV) Privatizations.

A. I only. B. I and II only. C. I, II, and III only. D. I, II,III, and IV. ANSWER: D

2. The merger of J.P. Morgan and Bank One is an example of:. (I) Cross-border merger. (II) Horizontal merger. (III) Conglomerate merger. (IV) Vertical merger.

A. I only. B. II only C. III only. D. I and III only. ANSWER: D

3. Pfizer's acquisition of Pharmacia is an example of:. (I) Horizontal merger. (II) Vertical merger. (III) Conglomerate merger.

A. I only. B. II only. C. III only

D. None of the given ones ANSWER: A

4. AOL's (America Online) acquisition of Time Warner is an example of:. (I) Cross-border merger. (II) Horizontal merger. (III) Conglomerate merger. (IV) Vertical merger.

A. I and II only. B. I and III only. C. III only. D. IV only ANSWER: D

5. Daimler-Benz's acquisition of Chrysler is an example of:. (I) Horizontal merger. (II) Conglomerate merger. (III) Cross-border merger. (IV) Vertical merger.

A. I only. B. II only. C. I and III only. D. IV only. ANSWER: C

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Vertical merger. (III) Conglomerate merger. (IV) Cross-border merger. A. I only. B. II only C. III only D. I and IV only. ANSWER: B

7. The BP and Amoco merger is an example of:. (I) Cross-border merger. (II) Horizontal merger. (III) Economies of scale.

A. I only B. I and II only. C. I, II, and III only. D. III only

ANSWER: C

8. AT&T's acquisition of TCI is an example of:. (I) Horizontal merger. (II) Vertical merger. (III) Conglomerate merger. (IV) Cross-border merger.

A. I only. B. II only C. III only.

D. III and IV only. ANSWER: B

9. The following reasons are good motives for mergers except:. (I) Economies of scale. (II) Complementary resources. (III) Diversification. (IV) Eliminating Inefficiencies.

A. I only B. II only. C. III only.

D. I, II, and IV only. ANSWER: C

10. The following are good reasons for mergers:. (I) Surplus funds. (II) Eliminating inefficiencies. (III) Complementary resources. (IV) Increasing earnings per share (EPS).

A. I only. B. I and II only. C. I, II, and III only. D. IV only

ANSWER: C

11. The following are good reasons for mergers:. (I) Economies of scale. (II) Economics of vertical integration. (III) Complementary resources. (IV) Surplus funds. (V) Eliminating inefficiencies. (VI) Industry consolidation

A. I only.

B. I, II, and III only. C. I, III, IV, and V only. D. I, II, III, IV, V, and VI. ANSWER: D

12. The following are dubious reasons for mergers:. (I) to diversify. (II) increasing the earnings per share (EPS). (III) lower financing costs. (IV) industry consolidation.

A. I only

B. II and IV only. C. III and IV only. D. I, II, and III only.

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ANSWER: D

13. Firm A is planning to acquire Firm B. If Firm A prefers to make a cash offer for the merger itindicates that:.

A. Firm A's managers are optimistic about the post merger value of A. B. Firm A's managers are pessimistic about the post merger value of A. C. Firm A's managers are neutral about the post merger value of A. D. None of the above

ANSWER: A

14. . If firms A is acquiring firm B and Bs shareholders are given the fraction x of the combined firm, then the cost of this merger is:.

A. Cost = (x)(PVAB) -PVB B. Cost = PVAB - (x) PVB. C. Cost = PVAB - (x) PVA D. Cost = (x)PVAB - (x) PVB . ANSWER: A

15. Which of the following is not a major item of US antitrust legislation? (I) Garn-St. Germain Act. (II) Clayton Act. (III) Hart-Scott-Rodino Act.

A. I only. B. II only. C. III only. D. II and III only. ANSWER: A

16. The acquisition of stock has the advantage of:. A. . No shareholder meeting to vote is necessary B. Minority shareholders may exist

C. Opening the bidding to others D. All of the above

ANSWER: A

17. The following mergers have been blocked on antitrust grounds except:. A. Reynolds and Alcoa

B. Kroger and Winn Dixie C. Office Depot and Staples. D. AOL and Time Warner ANSWER: D

18. Following an acquisition, the acquiring firm's balance sheet shows an asset labeled "goodwill." What form of merger accounting is being used?

A. Consolidation B. Aggregation. C. Purchase.

D. None of the above ANSWER: C

19. If an acquisition is made using cash payment then the acquisition is:. A. Taxable.

B. Viewed as exchanging of shares and is not taxed.

C. A tax-free transaction as no capital gains or losses are recognized D. None of the above

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20. The main difference in a tax-free versus taxable acquisition to the shareholders is that:. (I) In a tax-free acquisition shares are only exchanged, while in a taxable transaction the shares are considered sold and realized capital gains or losses are taxed. (II) In a tax-free acquisition a capital gain and loss are realized and then new shares issued, while in a taxable transaction the assets are revalued, taxed on any capital gains and losses and then shares exchanged. (III) In a tax-free acquisition the shareholders simply take the cash and depart, while in a taxable transaction the shareholders must stay with the new entity.

A. I only. B. II only. C. III only D. I and III only. ANSWER: A

21. What are the tax consequences of a taxable merger?

A. Selling shareholders can defer any capital gain until they sell their shares in the merged company. B. Depreciation tax shield is unchanged by merger

C. Selling shareholders must recognize any capital gain D. Depreciable value of assets will remain unchanged ANSWER: C

22. Which of the following factors influence the choice between merger and an acquisition of stock? (I) Shareholders are dealt with directly to bypass target management and board of directors. (II) In a tender offer, usually some minority shareholders do not tender stopping complete firm absorption. (III) Target management may be unfriendly and resist an offer. Resistance usually makes the stock price higher.

A. I only B. II only C. III only. D. I, II, and III. ANSWER: D

23. A dissident group solicits votes in an attempt to replace existing management. This is called a:. A. Proxy fight

B. Shareholder derivative action C. Tender offer.

D. Management freeze-out ANSWER: A

24. A modification of the corporate charter that requires 80% shareholder approval for takeover is called a(n):.

A. Repurchase standstill provision B. Exclusionary self-tender C. Super majority amendment. D. Tender offer.

ANSWER: C

25. An example of a shark-repellent charter amendment is:. (I) Supermajority. (II) Waiting period. (III) Poison pill. (IV) Staggered board.

A. . I only. B. II only C. I and II only. D. I, II, III, and IV. ANSWER: D

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26. Compensation paid to top management in the event of a takeover is called a:. A. Poison pill. B. Golden parachute. C. Self-tender. D. Buyout. ANSWER: B

27. As a defensive maneuver, a firm issues deep-discount bonds that are redeemable at par in the event of an unfriendly takeover. These bonds are an example of:.

A. Greenmail

B. A "scorched earth" policy C. Crown jewels

D. A poison put. ANSWER: D

28. The absorption of one firm by another such that the acquired firm no longer exists as a separate entity is called a(n):.

A. Acquisition of stock. B. Merger.

C. Shared agreement D. Consolidation. ANSWER: D

29. Which one of the following creates a brand new firm by merging existing entities? A. Acquisition of stock

B. Merger.

C. Shared agreement. D. Consolidation ANSWER: D

30. Which one of the following statements is correct?

A. With a consolidation, the acquiring firm keeps its legal existence but the acquired firm does not. B. The acquiring firm acquires the assets, but not the liabilities, of the acquired firm in a merger. C. When Babco acquired Sitco it was most likely a consolidation because the combined firm's name was Basit

D. . The key difference between a merger and a consolidation is that a merger creates an entirely new firm whereas a consolidation does not.

ANSWER: C 31. Appraisal rights:.

A. Grant any synergy benefits from a merger to the shareholders of the acquired firm. B. Are designed to eliminate the need for legal battles in connection with a merger.

C. Allow the shareholders of an acquired firm to determine the value that is to be placed on the remaining "shell" of their firm after a merger.

D. Are granted to all involved shareholders in a merger to ensure both the shareholders of the acquiring firm and the acquired firm receive adequate value from a merger.

ANSWER: D

32. Which of the following are correct regarding mergers? I. A disadvantage of a merger is that it requires the approval of the shareholders of both the acquiring and the acquired firms. II. A

disadvantage of a merger is that it is legally complex. III. An advantage of a merger is that it is relatively inexpensive compared to other forms of acquisitions. IV. An advantage of a merger is the avoidance of the need to transfer title of the individual assets of the acquired firm to the acquiring firm.

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B. II and IV only. C. III and IV only. D. I, III, and IV only ANSWER: A

33. A tender offer is:.

A. A public offer to purchase shares of a target firm. B. The last step in the consolidation of two firms.

C. . The initial offer made by the acquiring firm to the dissenting shareholders of the acquired firm in a merger proceeding

D. An additional amount of compensation offered to a dissenting shareholder of an acquired firm in a merger

ANSWER: A

34. Which one of the following statements is correct?

A. In an acquisition of stock, it is board approval rather than shareholder approval that is required. B. The managers of a target firm rarely get involved in an acquisition of stock.

C. Shareholders are not required to formally vote on an acquisition of stock.

D. Acquisition of a target firm by a tender offer always leads to a complete absorption of the target firm

ANSWER: A

35. Which one of the following is a 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? A. . Consolidation

B. Merger.

C. Acquisition of stock. D. Acquisition of assets ANSWER: B

36. The title for each asset owned by the acquired, or target, firm must be officially transferred in which one of the following?

A. Acquisition of assets. B. Tender offer.

C. Merger.

D. Acquisition of stock ANSWER: A

37. Which of the following correctly depict differences between a merger and an acquisition of stock? A. A formal vote by the acquired firm's shareholders is required for an acquisition of stock but not for a merger

B. The acquiring firm can deal directly with the shareholders of the acquired firm when a merger, but not an acquisition of stock, is the means of acquisition

C. An acquisition of stock results in the total absorption of a firm whereas a merger does not. D. Shareholders of the acquired or target firm vote by their response to a tender offer in an acquisition of stock but cast a formal vote in a merger situation

ANSWER: D

38. The complete absorption of one company by another, wherein the acquiring firm retains its identity and the acquired firm ceases to exist as a separate entity, is called a:.

A. Merger

B. Consolidation. C. Tender offer D. Spinoff

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ANSWER: A

39. A merger in which an entirely new firm is created and both the acquired and acquiring firms cease to exist is called a

A. Divestiture. B. Consolidation. C. Tender offer. D. none of the above ANSWER: B

40. A public offer by one firm to directly buy the shares of another firm is called a:. A. Merger.

B. Consolidation C. Tender offer. D. Spinoff ANSWER: C

41. The acquisition of a firm in the same industry as the bidder is called a _____ acquisition A. Conglomerate.

B. Forward. C. Backward D. Horizontal ANSWER: D

42. The acquisition of a firm involved with a different production process stage than the bidder is called a _____ acquisition. A. Conglomerate. B. Forward. C. Backward D. Horizontal ANSWER: D

43. The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition A. Conglomerate B. Forward C. Backward. D. Horizontal ANSWER: A

44. An attempt to gain control of a firm by soliciting a sufficient number of stockholder votes to replace the current board of directors is called a:.

A. Tender offer. B. Proxy contest.

C. Going-private transaction. D. Leveraged buyout.

ANSWER: B

45. A business deal in which all publicly owned stock in a firm is replaced with complete equity ownership by a private group is called a:.

A. Tender offer. B. Proxy contest.

C. Going-private transaction. D. Leveraged buyout

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ANSWER: C

46. Going-private transactions in which a large percentage of the money used to buy the outstanding stock is borrowed is called a:.

A. Tender offer. B. Proxy contest. C. Merger.

D. Leveraged buyout. ANSWER: D

47. The positive incremental net gain associated with the combination of two firms through a merger or acquisition is called:.

A. The agency conflict B. Goodwill.

C. The merger cost.

D. The consolidation effect. ANSWER: D

48. 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:

A. Supermajority amendment. B. Standstill agreement. C. Greenmail provision. D. Poison pill amendment. ANSWER: A

49. A contract wherein the bidding firm agrees to limit its holdings in the target firm is called a:. A. Supermajority amendment.

B. Standstill agreement. C. Greenmail provision. D. Poison pill amendment. ANSWER: B

50. 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:.

A. A golden parachute. B. Standstill payments. C. Greenmail.

D. A poison pill ANSWER: D

51. A financial device designed to make unfriendly takeover attempts financially unappealing, if not impossible, is called:. A. A golden parachute. B. A standstill agreement. C. Greenmail. D. A poison pill ANSWER: D

52. Geneous compensation packages paid to firms top management in the event of a takeover are referred to as:.

A. Golden parachutes. B. Poison puts.

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D. Shark repellents. ANSWER: A

53. A friendly suitor that a target firm turns to as an alternative to a hostile bidder is called a:. A. Golden suitor

B. Poison put C. White knight. D. Shark repellent ANSWER: C

54. The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n):. A. Split-up.

B. Equity carve-out. C. Counter tender offer. D. White knight transaction ANSWER: D

55. The distribution of shares in a subsidiary to existing parent company stockholders is called a(n):. A. Lockup transaction.

B. Bear hug.

C. Equity carve-out. D. Spin-off

ANSWER: D

56. 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.

A. I and III only B. II and IV only. C. I and IV only D. I, III, and IV only. ANSWER: A

57. In a merger the:.

A. Legal status of both the acquiring firm and the target firm is terminated B. Acquiring firm retains its name and legal status.

C. Acquiring firm acquires the assets but not the liabilities of the target firm. D. Stockholders of the target firm have little, if any, say as to whether or not the ANSWER: B

58. When a building supply store acquires a lumber mill it is making a ______ acquisition. A. Horizontal.

B. Longitudinal. C. Conglomerate. D. Vertical. ANSWER: D

59. . If Microsoft were to acquire U.S. Airways, the acquisition would be classified as a _____ acquisition

A. Horizontal. B. Longitudinal. C. Conglomerate.

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D. Vertical. ANSWER: C

60. Which of the following activities are commonly associated with takeovers? I. The acquisition of assets. II. Proxy contests. III. Management buyouts. IV. Leveraged buyouts.

A. I and III only. B. II and IV only C. I, III, and IV only. D. I, II, and IV only. ANSWER: D

61. In a tax-free acquisition, the shareholders of the target firm A. Receive income that is considered to be tax-exempt

B. Gift their shares to a tax-exempt organization and therefore have no taxable gain. C. Are viewed as having exchanged their shares.

D. Sell their shares to a qualifying entity thereby avoiding both income and capital gains taxes. ANSWER: C

62. The purchase accounting method for mergers require that:.

A. The excess of the purchase price over the fair market value of the target firm be recorded as a one-time expense on the income statement of the acquiring firm.

B. Goodwill be amortized on a yearly basis.

C. The equity of the acquiring firm be reduced by the excess of the purchase price over the fair market value of the target firm.

D. The assets of the target firm be recorded at their fair market value on the balance sheet of the acquiring firm.

ANSWER: D

63. 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.

A. . I and III only. B. . II and III only. C. I and IV only D. . I, II, and III only ANSWER: D

64. 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.

A. I and IV only. B. II and III only. C. . III and IV only. D. I and III only. ANSWER: C

65. . If an acquisition does not create value, then the:.

A. . Earnings per share of the acquiring firm must be the same both before and after the acquisition B. Earnings per share can change but the stock price of the acquiring firm should remain constant. C. Price per share of the acquiring firm should increase because of the growth of the firm.

D. Earnings per share will most likely increase while the price-earnings ratio remains constant. ANSWER: B

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complementary resources?

A. A ski resort and a travel trailer sales outlet B. A golf resort and a ski resort

C. A hotel and a home improvement center

D. A swimming pool distributor and a kitchen designer ANSWER: B

67. Which one of the following is most likely a good candidate for an acquisition that could benefit from the use of complementary resources?

A. A sports arena that is home only to an indoor hockey team. B. A hotel in a busy downtown business district of a major city

C. A day care center located near a major route into the main business district of a large city. D. An amusement park located in a centralized Florida location

ANSWER: A

68. The shareholders of a target firm benefit the most when:.

A. An acquiring firm has the better management team and replaces the target firm's managers. B. The management of the target firm is more efficient than the management of the acquiring firm which replaces them.

C. The management of both the acquiring firm and the target firm are as equivalent as possible. D. Their current management team is kept in place even though the managers of the acquiring firm are more suited to manage the target firm's situation

ANSWER: A

69. 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.

A. II and III only. B. I and IV only. C. I, II, and IV only D. I, III, and IV only ANSWER: C

70. The value of a target firm to the acquiring firm is equal to:.

A. The value of the target firm as a separate entity plus the incremental value derived from the acquisition

B. . The purchase cost of the target firm.

C. The value of the merged firm minus the value of the target firm as a separate entity. D. The purchase cost plus the incremental value derived from the acquisition

ANSWER: A

71. Which one of the following statements is correct?

A. If an acquisition is made with cash, then the cost of that acquisition is dependent upon the acquisition gains.

B. Acquisitions made by exchanging shares of stock are normally taxable transactions.

C. The management of an acquiring firm may put itself at risk of losing control of the firm if they make acquisitions using shares of stock.

D. The stockholders of the acquiring firm will be better off when an acquisition results in losses if the acquisition was made with cash rather than with stock.

ANSWER: C

72. If a firm wants to take over another firm but feels the attempt to do so will be viewed as unfriendly it could decide to take a _____ approach to the acquisition.

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B. Shark repellent. C. Bear hug.

D. Counter tender offer. ANSWER: C

73. . 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. A. I and II only.

B. I, II, and III only. C. I, III, and IV only. D. II, III, and IV only ANSWER: D

74. Which one of the following statements is correct? 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.

ANSWER: A

75. In a merger or acquisition, a firm should be acquired if it:.

A. Generates a positive net present value to the shareholders of an acquiring firm. B. Is a firm in the same line of business, in which the acquirer has expertise. C. Is a firm in a totally different line of business which will diversity the firm D. Pays a large dividend which will provide cash pass through to the acquiror. ANSWER: A

76. A reason for acquisitions is synergy. Synergy includes A. Revenue enhancements.

B. Cost reductions. C. Lower taxes. D. All of the above. ANSWER: D

77. One company wishes to acquire another. Which of the following forms of acquisition does not require a formal vote by the shareholders of the acquired firm? .

A. Merger

B. Acquisition of stock C. Acquisition of assets D. Consolidation . ANSWER: B

78. Firm A and Firm B join to create Firm AB. This is an example of:. A. A tender offer.

B. An acquisition of assets. C. An acquisition of stock. D. A consolidation.

ANSWER: D

79. Suppose that Verizon and Sprint were to merge. Ignoring potential antitrust problems, this merger would be classified as a:.

A. Horizontal merger. B. Vertical merger.

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C. Conglomerate merger D. Monopolistic merger ANSWER: A

80. Suppose that General Motors has made an offer to acquire General Mills. Ignoring potential antitrust problems, this merger would be classified as a: .

A. Monopolistic merger. B. Horizontal merger. C. Vertical merger

D. Conglomerate merger. ANSWER: D

81. Suppose that Exxon-Mobil acquired Schlumberger, an exploration/drilling company. Ignoring potential antitrust problems, this merger would be classified as a:.

A. Monopolistic merger. B. Vertical merger. C. Conglomerate merger. D. Horizontal merger. ANSWER: B

82. A dissident group solicits votes in an attempt to replace existing management. This is called a:. A. Tender offer

B. Shareholder derivative action C. Proxy contest.

D. Management freeze-out. ANSWER: C

83. . If the All-Star Fuel Filling Company, a chain of gasoline stations acquire the Mid-States Refining Company, a refiner of oil products, this would be an example of a:.

A. Conglomerate acquisition. B. White knight.

C. Vertical acquisition. D. Going-private transaction. ANSWER: C

84. Which of the following is not true of an acquisition of stock or tender offers? A. No stockholder meetings need to be held.

B. No vote is required.

C. The bidding firm deals directly with the stockholders of the target firm. D. In most cases, 100% of the stock of the target firm is tendered

ANSWER: D

85. When the management and/or a small group of investors take over a firm and the shares of the firm are delisted and no longer publicly available, this action is known as a:

A. Consolidation. B. Vertical acquisition. C. Proxy contest

D. Going-private transaction. ANSWER: D

86. . One of the most basic reasons for a merger is:.

A. Revenue enhancing in the hopes that net losses may decrease B. Increased competition.

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D. Cost reductions. ANSWER: D

87. Cowboy Curtiss' Cowboy Hat Company recently completed a merger. When valuing the combined firm after the merger, which of the following is an example of the type of common mistake that can occur? .

A. The use of market values in valuing either the new firm

B. The inclusion of cash flows that are incremental to the decision

C. The use of Curtiss' discount rate when valuing the cash flows of the entire company. D. The inclusion of all relevant transactions cost associated with the acquisition. ANSWER: B

88. The following are some of the ways by which changes in company structure are effected:. (I) LBOs. (II) Privatizations. (III) Spin-offs and carve-outs. (IV) Bankruptcies.

A. I and II only. B. II only. C. I and III only. D. I, II, III, and IV. ANSWER: D

89. Leveraged buyouts (LBOs) almost always involve:. (I) a large part of the purchase price is financed mostly by debt. (II) most of the is below investment grade (junk). (III) the firm goes private and its shares are no longer traded on the open market.

A. . I only B. . II only. C. . III only D. I, II, and III. ANSWER: B

90. When a leveraged buyout transaction is led by the firm's management then the transaction is called:. A. . IPO.

B. MBO C. LBOM. D. CFO. ANSWER: C

91. . In 1988 LBOs were on average financed with 90% debt. In recent years the figure is:. A. 80%.

B. . 75%. C. . 60%. D. 50%. ANSWER: A

92. The following are examples of LBOs except A. America Online and Time Warner.

B. KKR and RJR Nabisco. C. KKR and Beatrice.

D. Texas Pacific Group, Bain Capital, & Goldman Sachs and Burger King. ANSWER: C

93. . The following are examples of LBOs except:. A. KKR and Safeway

B. KKR and PanAmSat. C. Daimler-Benz and Chrysler.

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D. All of the above are LBOs. ANSWER: D

94. The following are examples of LBOs that reverted to being public companies A. Northwest Airlines

B. Safeway Stores. C. Kaiser Aluminum. D. All of the above. ANSWER: C

95. Big gainers from LBOs were:. A. Junk bond holders.

B. Raiders.

C. Selling stockholders D. Investment banking firms. ANSWER: C

96. . Junk bonds are bonds with A. AAA or Aaa ratings. B. BBB or Baa ratings. C. BB or Ba ratings or lower. D. D rated bonds.

ANSWER: D

97. The main characteristics of LBOs are:. A. High debt.

B. Private ownership. C. Management incentives. D. All of the above.

ANSWER: D

98. The gains from LBOs are from:.

A. Tax savings because of high debt servicing. B. Loss in the value to bondholders.

C. Improved performance because of incentives to mangers and employees. D. All of the above.

ANSWER: C

99. The main characteristics of leveraged restructuring are:. (I) High debt. (II) Private ownership. (III) Management incentives.

A. I only. B. I and II only C. I and III only D. I, II, and III. ANSWER: D

100. The following are examples of spin-offs except:. A. Abbot Laboratories and Hospital.

B. AT&T and Lucent. C. General Motors and EDS. D. Exxon and Mobil.

ANSWER: A

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A. Shares of the new company are given to shareholders of the parent company. B. Shares of the new company are sold as a public offering.

C. Shares of the new company are bought by borrowing or issuing junk bonds D. None of the above.

ANSWER: B

102. Spin-offs are not taxed if the shareholders of the parent company are given at least:. A. 0% of the shares in the new company.

B. 80% of the shares in the new company. C. 70% of the shares in the new company. D. 60% of the shares in the new company ANSWER: B

103. In case of carve-outs:.

A. Shares of the new company are given to the shareholders of the parent company. B. Shares of the new company are sold in a public offering.

C. Shares of the new company are bought by borrowing or issuing junk bonds. D. None of the above.

ANSWER: D

104. The following are examples of carve-outs except:. A. Northwest Airlines and Pinnacle Airlines.

B. Sara Lee and Coach.

C. Union Pacific and Overnite Corp.

D. All of the above are examples of carve-outs. ANSWER: A

105. Which of the following statements regarding spin-offs and carve-outs is not true?

A. Spin-offs are not taxed if the shareholders of the parent company are given a majority of shares in the new company.

B. Spin-offs are not taxed if the shareholders of the parent company are given at least 80% of the shares in the new company

C. Gains or losses from carve-outs are taxed at the corporate tax rate D. In Carve-outs, parent company has the majority control.

ANSWER: C

106. Asset sales are:. (I) Good news for investors in the selling firm. (II) On average the assets are employed more productively after the sale. (III) Transfer business units to the companies that can manage them more efficiently.

A. I only. B. I and II only. C. . I, II, and III. D. III only. ANSWER: A

107. A privatization is a:.

A. Sale of a government-owned company to private investors. B. Sale of private companies to the government.

C. Sale of a publicly traded company to private investors. D. None of the above.

ANSWER: D

108. The following are examples of privatization except A. . Thai Airways

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B. Habib Bank

C. NTT (Nippon Telephone and Telegraph). D. AT&T.

ANSWER: A

109. Privatizations transactions resemble:. A. . Carve-outs.

B. Spin-offs C. LBOs.

D. None of the above ANSWER: D

110. . The following are important motives for privatization except A. Revenue for the government.

B. Increased efficiency. C. Share ownership. D. Economies of scale. ANSWER: C

111. Mergers and acquisitions in unrelated industries are called:. A. Horizontal mergers.

B. Vertical mergers. C. Conglomerate mergers. D. Privatization.

ANSWER: B

112. . Conglomerate discount means:. (I) The market value of the whole conglomerate is greater than the sum of the value of the parts. (II) The market value of the whole conglomerate is less than the sum of the value of the parts. (III) The book value of the whole conglomerate is greater than the sum of the value of the parts. (IV) The book value of the whole conglomerate is less than the sum of the value of the parts. A. I only. B. II only C. III only. D. IV only. ANSWER: D

113. Which of the following statements is/are true of limited partnerships:. A. Limited partners enjoy limited liability

B. Generally limited partners put up most of the money. C. Generally limited partners are institutional investors.

D. All of the above statements are true of limited partnerships. ANSWER: B

114. . Two in-court options for dealing with financial distress of a firm are:. A. Merger and acquisition.

B. Liquidation and reorganization. C. Leasing and LBO.

D. Issue stocks and bonds. ANSWER: D

115. Flow-based insolvency occurs when:.

A. Current obligations are greater than operating cash flows. B. Assets minus liabilities is less than zero.

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C. There is no cash for dividend payments. D. All of the above.

ANSWER: B

116. Indirect costs of bankruptcy are borne principally by. A. Bondholders

B. Stockholders. C. Managers. D. The government ANSWER: A

117. A bankrupt firm while being in the process of developing a reorganization plan is allowed to buy goods on credit and borrow money to finance needed working capital. Such an arrangement is called:.

A. Debtor-in-possession debt. B. Junior creditors.

C. Workout D. Receiver. ANSWER: C

118. Corporate-level strategy addresses two related issues: ?

A. How to compete in a given business; the application of technology

B. What businesses to compete in; how these businesses can achieve synergy. C. How to integrate primary activities; increase shareholder wealth.

D. How to improve a firm's infrastructure; how to maintain ethical behavior. ANSWER: B

119. Individual investors are dependent upon the corporation's managers to. A. Diversify the stockholder's investments in order to reduce risk.

B. Add value to their investments in a way that the stockholders could not accomplish on their own. C. Achieve risk reduction at a lower cost than stockholders could obtain on their own.

D. Maximize short-term returns in the form of dividends. ANSWER: A

120. McKesson, a large distribution company, sells many product lines such as. pharmaceuticals and liquor through its super warehouses. This is an example of.

A. Achieving economies of scope through related diversification B. Achieving market power through related diversification

C. Attaining the benefits of restructuring through unrelated diversification. D. Attaining the benefits of parenting through unrelated diversification ANSWER: B

121. Suppose that the market price of Company X is $45 per share and that of Company Y is $30. If X offers three-fourths a share of common stock for each share of Y, the ratio of exchange of market prices would be: A. .667 B. 1.0 C. 1.125 D. 1.5 ANSWER: C

122. The restructuring of a corporation should be undertaken if A. the restructuring can prevent an unwanted takeover

B. the restructuring is expected to create value for shareholders. C. the restructuring is expected to increase the firm's revenue.

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D. the interests of bondholders are not negatively affected ANSWER: B

123. The "information effect" refers to the notion that

A. a corporation's actions may convey information about its future prospects.

B. management is reluctant to provide financial information that is not required by law. C. agents incur costs in trying to obtain information.

D. the financial manager should attempt to manage sensitive information about the firm. ANSWER: A

124. In the long run, a successful acquisition is one that:

A. enables the acquirer to make an all-equity purchase, thereby avoiding additional financial leverage.

B. enables the acquirer to diversify its asset base.

C. increases the market price of the acquirer's stock over what it would have been without the acquisition

D. increases financial leverage ANSWER: C

125. Bidding companies often pay too much for the acquired firm. The hubris hypothesis explains this by suggesting that the bidders

A. have too little information to make an optimal decision. B. have big egos and this impedes rational decision-making. C. have difficulty in thinking strategically over the long-term. D. are overly influenced by the tax consequences of an acquisition. ANSWER: A

126. A tender offer is

A. a goodwill gesture by a "white knight."

B. a would-be acquirer's friendly takeover attempt.

C. a would-be acquirer's offer to buy stock directly from shareholders. D. viewed as sexual harassment when it occurs in the workplace. ANSWER: C

127. The public sale of common stock in a subsidiary in which the parent usually retains majority control is called A. a pure play B. a spin-off. C. a partial sell-off. D. an equity carve-out. ANSWER: D

128. In the United States, goodwill charges arising from a current acquisition are generally deductible for "tax purposes" over

A. 15 years. B. 20 years. C. 40 years. D. 10 years ANSWER: A

129. Empirical evidence on acquisitions indicates excess returns on average to the shareholders of the selling company, and e xcess returns on average to those of the buying company.

A. no; no

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C. no; substantial

D. substantial; substantial ANSWER: B

130. One means for a company to "go private" is A. divestiture.

B. the pure play.

C. the leveraged buyout (LBO). D. the prepackaged reorganization. ANSWER: C

131. Recent accounting changes in the US .

A. eliminated the purchase method, allowing only the pooling-of-interests method for mergers and acquisitions

B. eliminated the pooling-of-interests method, allowing only the purchase method for mergers and acquisitions

C. allow for both the purchase method and the pooling-of-interests method for mergers and acquisitions

D. outlawed the recording of goodwill for any merger or acquisition ANSWER: B

132. A firm that acquires another firm as part of its strategy to sell off assets, cut costs, and operate the remaining assets more efficiently is engaging in __________.

A. a strategic acquisition B. a financial acquisition C. two-tier tender offer D. shark repellent ANSWER: B

133. A would-be acquirer's offer to buy stock directly from shareholders is referred to as __________. A. a white knight

B. a joint venture C. a tender offer D. a takeover ANSWER: C

134. The restructuring of a firm should be undertaken if __________. A. the restructuring is expected to create value for shareholders

B. the restructuring is expected to increase earnings per share (EPS) next year

C. the restructuring is expected to increase the firm's market share power within the industry D. the current employees will receive additional stock options to align employee interest ANSWER: A

135. Economies of scale, market share dominance, and technological advances are reasons most likely to be offered to justify a __________.

A. financial acquisition B. strategic acquisition C. Divestiture

D. supermajority merger approval provision ANSWER: B

136. Suppose that the market price per share of Company A is $100 and that of Company B is $40. If A offers one-half (1/2) a share of common stock for each share of B, the exchange ratio with respect to market prices would be __________.

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A. 0.40 B. 0.80 C. 1.25 D. 2.50 ANSWER: C

137. A reason suggested by the authors for a divestiture, such as a sell-off or spin-off, is __________. A. synergy

B. reverse synergy C. hubris

D. economies of scale ANSWER: B

138. What is the most likely reason that a firm (who is highly profitable) might consider acquiring a firm that has had large recent losses and will continue to have losses into the near future?

A. Hubris. B. White knight. C. Tax-loss usage. D. Increase assets ANSWER: C

139. Richard Roll makes a case with the __________ hypothesis that takeovers are motivated by bidder pride and confidence in their abilities relative to others.

A. hubris

B. efficient markets C. management success D. synergy

ANSWER: A

140. A merger that signals to the investors in the market place a change in strategy or operating efficiency that can not be conveyed in another manner is referred to as __________.

A. the information effect B. the wealth effect C. strategic effect D. bootstrapping effect ANSWER: A

141. A firm that acquires another firm as part of its overall business strategy is engaging in __________. A. a strategic acquisition

B. a financial acquisition C. a two-tier tender offer D. a shark repellent ANSWER: A

142. The average takeover premium a target firm has historically received is closest to which of the following percentages? A. 5% B. 12% C. 30% D. 80% ANSWER: C

143. What remains after we subtract operating costs and capital expenditures necessary to at least sustain cash flows from total firm revenues?

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A. Free cash flows. B. Strategic cash flows. C. Net income.

D. Earnings before interest and taxes (EBIT). ANSWER: A

144. How should a successful acquisition be evaluated in the long-run?

A. The acquisition is successful if the acquirer is able to increase its earnings per share (EPS), relative to what it would have been without the acquisition.

B. The acquisition is successful if the acquirer is able to reduce its debt-to-total asset ratio, and hence risk, relative to what it would have been without the acquisition.

C. The acquisition is successful if the acquirer is able to diversify its asset base and reduce its overall risk.

D. The acquisition is successful if the market price of the acquirer's stock increases over what it would have been without the acquisition

ANSWER: D

145. What is the landmark piece of legislation designed to promote competition by combating monopolistic behaviors through antitrust law?

A. The Securities Act of 1933. B. The Securities Act of 1934. C. The Antitrust Act of 1915. D. The Clayton Act.

ANSWER: D

146. A firm can acquire another firm __________. A. only by purchasing the assets of the target firm

B. only by purchasing the common stock of the target firm

C. by either purchasing the assets or the common equity of the target firm. D. None of the above are methods of acquiring the target firm

ANSWER: C

147. Which of the following hypotheses attempt to explain the motivation behind creating barriers to receiving unsolicited takeover offers?

A. Only the managerial entrenchment hypothesis B. Only the shareholders' interest hypothesis. C. Only the takeover barrier hypothesis.

D. Both the first and second answers are hypotheses that attempt to explain this motivation. ANSWER: D

148. What is a business organizational model that involves the large-scale outsourcing of business functions? A. Virtual corporation. B. Joint venture. C. Corporate liquidation. D. Equity carve-out. ANSWER: A

149. A bidder that offers a higher price to the first fixed quantity of shares tendered and a lower second price for all remaining shares is engaging in __________.

A. a strategic acquisition B. a financial acquisition C. a two-tier tender offer D. shark repellent

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ANSWER: C

150. How do you refer to the public sale of stock in a subsidiary in which the parent usually retains majority control? A. Virtual corporation B. Joint venture. C. Corporate liquidation. D. Equity carve-out. ANSWER: D

151. By using a __________, the firm can independently control considerable assets with a very limited amount of equity.

A. joint venture

B. leveraged buyout (LBO) C. spin-off

D. consolidation ANSWER: B

152. As discussed in the text, the creation of a global 24-hour news and information cable network called MSNBC is an example of a __________. A. strategic acquisition B. financial acquisition C. joint venture D. virtual corporation ANSWER: C

153. Philip Morris bought Miller Brewing and used its marketing expertise to improve Miller's market share. This justification for diversification is best described as

A. Utilizing common infrastructures. B. Capitalizing on core competencies. C. Reducing corporate risk.

D. Using portfolio analysis. ANSWER: D

154. The corporate office of Cooper Industries adds value to its acquired businesses by performing such activities as auditing their manufacturing operations, improving their accounting activities, and

centralizing union negotiations. This is an example of.

A. Achieving economies of scope through related diversification. B. Achieving market power through related diversification

C. . Attaining the benefits of restructuring through unrelated diversification D. Attaining the benefits of parenting through unrelated diversification ANSWER: C

155. . _________ reflect(s) the collective learning in organizations such as how to coordinate production skills, integrate multiple streams of technologies, and market and. merchandise diverse products and services.

A. Primary value chain activities. B. . Culture

C. Core competencies. D. Horizontal integration. ANSWER: D

156. For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements?

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A. The competence must help the business gain strength relative to its competition.

B. . The new business must be similar to existing businesses to benefit from a core. competence. C. The collection of competencies should be unique, so that they cannot be easily. Imitated. D. . The new business must have an established large market share.

ANSWER: B

157. . Sharing core competencies is one of the primary potential advantages of. diversification. In order for diversification to be most successful, it is important that.

A. The similarity required for sharing core competencies must be in the value chain, not in the product.

B. The products use similar distribution channels

C. The target market is the same, even if the products are very different. D. . The methods of production are the same

ANSWER: B

158. When management uses common production facilities or purchasing procedures to distribute different but related products, they are.

A. . Building on core competencies B. Sharing activities.

C. Achieving process gains D. Using portfolio analysis. ANSWER: C

159. Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This is an example of.

A. Leveraging core competencies B. Sharing activities

C. Vertical integration. D. Pooled negotiating power ANSWER: B

160. The risks of vertical integration include all of the following except A. The risks of vertical integration include all of the following except B. Lack of control over valuable assets

C. Problems associated with unbalanced capacities along the value chain

D. Additional administrative costs associated with managing a more complex set of activities. ANSWER: C

161. Unbalanced capacities that limit cost savings, difficulties in combining specializations, and reduced flexibility are disadvantages associated with.

A. Strategic alliances. B. Divestment.

C. Vertical integration. D. Horizontal integration. ANSWER: B

162. A firm should consider vertical integration when A. The competitive situation is highly volatile. B. Customer needs are evolving.

C. The firm's suppliers willingly cooperate with the firm.

D. The firm's suppliers of raw materials are often unable to maintain quality standards. ANSWER: C

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A. Lower transaction costs and improved coordination are vital and achievable through vertical integration

B. The minimum efficient scales of two corporations are different

C. Flexibility is reduced, providing a more stationary position in the competitive. environment D. Various segregated specializations will be combined

ANSWER: D

164. Transaction costs include all of the following costs except A. Search costs.

B. Negotiating costs. C. Monitoring costs D. . Agency costs ANSWER: A

165. Vertical integration is attractive when

A. Internal administrative costs are higher than transaction costs. B. Transaction costs and internal administrative costs are equal. C. Search costs are higher than monitoring costs

D. Transaction costs are higher than internal administrative costs ANSWER: C

166. __________ is when a firm's corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures.

A. Parenting. B. Restructuring

C. Leveraging core competencies. D. Increasing market power. ANSWER: A

167. . __________ is when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change.

A. Parenting B. . Restructuring

C. Leveraging core competencies D. Sharing activities

ANSWER: A

168. According to the text, corporate restructuring includes.

A. Capital restructuring, asset restructuring, and technology restructuring B. Global diversification, capital restructuring, and asset restructuring.

C. Management restructuring, financial restructuring, and procurement restructuring D. Capital restructuring, asset restructuring, and management restructuring

ANSWER: B

169. Portfolio management matrices are applied to what level of strategy? A. Departmental level.

B. Business level C. Corporate level. D. International level. ANSWER: D

170. When using a BCG matrix, a business that currently holds a large market share in a rapidly growing market and that has minimal or negative cash flow would be known as a.

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B. Dog.

C. Problem child. D. Star

ANSWER: C

171. . In the BCG (Boston Consulting Group) Matrix, a business that has a low market share in an industry characterized by high market growth is termed a.

A. Star

B. Question mark C. Cash cow. D. Dog. ANSWER: D

172. Portfolio management frameworks (e.g., BCG matrix) share which of the following characteristics? A. Grid dimensions are based on external environments and internal. capabilities/market positions B. Businesses are plotted on a 3-dimensional grid

C. Position in the matrix suggests a need for or ability to share, infrastructures or build on core competences.

D. They are most helpful in helping businesses develop types of competitive advantage ANSWER: B

173. A "cash cow," referred to in the Boston Consulting Group Portfolio management technique, refers to a business that has.

A. Low market growth and relatively high market share B. Relatively low market share and low market growth C. Relatively low market share and high market growth D. High market growth and relatively high market share. ANSWER: C

174. In managing a firm's portfolio, the BCG matrix would suggest that

A. Dogs" should be invested in to increase market share and become cash cows.

B. "Stars" are in low growth markets and can provide excess cash to fund other opportunities C. Question marks" can represent future "stars" if their market share is increased

D. Cash cows" require substantial cash outlays to maintain market share ANSWER: A

175. In the Boston Consulting Group's (BCG) Growth Share Matrix, the suggested strategy for "stars" is to.

A. Milk them to finance other businesses

B. Invest large sums to gain a good market share

C. Not invest in them and to shift cash flow to other businesses

D. Maintain position and after the market growth slows use the business to providecash flow. ANSWER: C

176. All of the following are limitations (or downsides) of the BCG (Boston Consulting Group) matrix except

A. . Every business cannot be accurately measured and compared on the two dimensions B. It views each business as a stand-alone entity and ignores the potential for synergies across businesses

C. It takes a dynamic view of competition which can lead to overly complex analyses

D. While easy to comprehend, the BCG matrix can lead to some troublesome and overly simplistic prescriptions.

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177. The three primary means by which a firm can diversify are

A. . Mergers and acquisitions; joint ventures and strategic alliances; internal development B. Mergers and acquisitions; differentiation; overall cost leadership.

C. Joint ventures and strategic alliances; integration of value chain activities; acquiring. D. Human capital.

ANSWER: C

178. The downsides or limitations of mergers and acquisitions include all of the following except A. Expensive premiums that are frequently paid to acquire a business

B. Difficulties in integrating the activities and resources of the acquired firm into a corporation's on-going operations

C. it is a slow means to enter new markets and acquire skills and competences

D. There can be many cultural issues that can doom an otherwise promising acquisition ANSWER: A

179. Divesting businesses can accomplish many different objectives. These include A. Enabling managers to focus their efforts more directly on the firm's core businesses B. Providing the firm with more resources to spend on more attractive alternatives. C. . Raising cash to help fund existing businesses

D. All of the above ANSWER: C

180. A company offering local telecommunications service combines resources with an international company that manufactures digital switching equipment to research a new type of telecommunications technology. This is an example of.

A. Joint diversification. B. Strategic alliance. C. Divestment D. Divestment ANSWER: D

181. Cooperative relationships such as __________ have the potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.

A. Joint ventures.

B. Mergers and acquisitions.

C. . Strategic alliances 2 so Confusing! It says they are the same but they are different. D. A and C

ANSWER: B

182. All of the following are guidelines for managing strategic alliances except. A. Establishing a clear understanding between partners.

B. Relying primarily on a contract to make the joint venture work DUMB Question!. C. Not shortchanging your partner.

D. Working hard to ensure a collaborative relationship between partners. ANSWER: C

183. Which of the following statements regarding internal development as a means of diversification is false?

A. Many companies use internal development to extend their product lines or add to their service offerings

B. An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services.

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partners.

D. Firms can often develop products or services at a lower cost if they rely on their. own resources instead of external funding

ANSWER: B

184. . __________ may be time consuming and, therefore, firms may forfeit the benefits of speed that growth through __________ and __________ can provide.

A. Strategic alliances; joint ventures, internal development B. Internal development; mergers; acquisitions.

C. Strategic alliances; mergers; joint ventures.

D. Mergers; internal development; strategic alliances. ANSWER: B

185. According to Michael Porter: "There's a tremendous allure to __________. It's the big play, the dramatic gesture. With one stroke of the pen you can add billions to size, get a front page story, and create excitement in markets.".

A. Strategic alliances and joint ventures B. Mergers and acquisitions.

C. Internal development D. Differentiation strategies. ANSWER: B

186. An antitakeover tactic called (a) __________ is when a firm offers to buy shares of their stock from a company (or individual) planning to acquire their firm at a higher price than the unfriendly company paid for it.

A. Golden parachute. B. Greenmail.

C. Poison pill. D. Scorched earth. ANSWER: B

187. An antitakeover tactic in which existing shareholders have the option to buy additional shares of stock at a discount to the current market price is called

A. Greenmail. B. A poison pill.

C. . A golden parachute. D. Scorched earth ANSWER: B

188. The term "golden parachutes" refers

A. A clause requiring that huge dividend payments be made upon takeover

B. . Financial inducements offered by a threatened firm to stop a hostile suitor from acquiring it C. Managers of a firm involved in a hostile takeover approaching a third party about making the acquisition.

D. Pay given to executives fired because of a takeover ANSWER: B

189. An titakeover tactics include all of the following except. A. Greenmail

B. Golden parachutes. C. Golden handcuffs. D. Poison pills. ANSWER: D

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190. Which of the following refers to a situation in which the merger results in over 25 percent of the market in the hands of the merged firms?

A. Gateway condition B. Assets test.

C. Herfindahl Hirschman Index. D. Share of supply test

ANSWER: C

191. Which of the following has the responsibility for making an initial decision as to whether a proposed merger is likely to result in a 'lessening of competition'?

A. Monetary Policy Committee. B. Competition Commission (CC). C. Office of Fair Trading (OFT). D. Chancellor of the Exchequer. ANSWER: D

192. Which of the following is responsible for investigating cases referred to it and deciding whether or not a proposed merger is in the public interest?

A. Office of Fair Trading (OFT).

B. Secretary of State for Trade and Industry C. Director General of Fair Trading (DGFT). D. Competition Commission (CC).

ANSWER: C

193. Which of the following refers to a situation in which the merger involves gross world-wide assets exceeding dollar 70m in value?

A. Herfindahl Hirschman Index. B. Restrictive practice

C. Gateway condition. D. Turnover test ANSWER: D

194. Which of the following provides a judicial review of a mergers-decision made by the OFT, CC or Secretary of State for Trade and Industry?

A. Chancellor of the Exchequer. B. Competitim Appeal Tribunal (CAT). C. Competition Commission.

D. Secretary of State for Trade and Industry. ANSWER: D

195. Involving a firm in a totally unrelated business. A. Lateral integration.

B. Conglomerate integration. C. . Horizontal integration. D. Organic growth

ANSWER: B

196. When a firm purchases a majority of another firm's assets or a controlling share of another firm's assets, the firm is engaging in.

A. A merger. B. An acquisition C. A hostile takeover. D. A tender offer. ANSWER: B

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197. According to the FTC, a firm is engaging in a _______ when the firm acquires suppliers or customers

A. Horizontal merger. B. Conglomerate merger. C. Vertical merger.

D. Market extension merger. ANSWER: C

198. All of the following are possible motivations for firms to engage in mergers and acquisitions except A. Agency problems.

B. The potential to earn above-normal profits. C. Managerial hubris.

D. To increase the stock price of the firm. ANSWER: A

199. The market for corporate control is imperfectly competitive when. A. The target firm has valuable and rare resources

B. The bidding firm has valuable, rare, and costly to imitate economies of scope with the target firm. C. Both the bidding firm and target firm have knowledge of valuable resources

D. Costly to imitate resources and competencies exist in the bidding firm. ANSWER: A

200. Thinly traded merger and acquisition markets typically have all of the following characteristics except

A. Competition occurs at the local level.

B. It is uncommon for bidding and target firms to have valuable and rare economies of scale. C. Most firms are small and privately held

D. The market is highly fragmented. ANSWER: B

201. __________ is when a target firm's managers purchase any of the target firm's stock that is owned by the bidder.

A. Golden parachute. B. Shark repellents. C. Green mail

D. A crown jewel sale. ANSWER: C

202. When a second bidding firm agrees to acquire the target firm in place of the original bidding firm, the target firm has

A. Found a white knight

B. Engaged in a shark repellent action. C. Completed a standstill agreement. D. Implemented poison pills.

ANSWER: A

203. When mergers and acquisitions are designed to create diversification strategies, the __________ is the appropriate organizational structure

A. C-Form. B. M-Form C. . S-Form. D. U-Form. ANSWER: B

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204. Which of the following is NOT one of Hofstede's dimensions of culture? A. Uncertainty orientation. B. . Power orientation. C. Social orientation D. Work orientation. ANSWER: D

205. Which cultural dimension set forth by Hofstede reflects the attitude of employees who leave when work begins to interfere with the quality of life?

A. Power tolerance. B. Uncertainty avoidance C. Passive goal behavior. D. Short term outlook. ANSWER: C

206. A written document signed by a shareholder that authorizes another person to vote the shareholders shares is a. A. Proxy contest B. Proxy statement. C. Proxy card. D. Share exchange. ANSWER: A

207. Which of the following states the information that must be contained in a proxy statement? A. The matter for which the proxy is being solicited and who is soliciting the proxy.

B. The matter for which the proxy is being solicited and an analysis of the likelihood of success of the proxy contest.

C. The name of the party soliciting the proxy and an analysis of the likelihood of success of the proxy contest.

D. Both a and b. ANSWER: A

208. Which of the following is one of the rule changes adopted by the SEC in 1992?

A. Proxies for multiple issues must be unbundled to allow the shareholder to decide separately whether they desire to grant a proxy related to each issue.

B. The annual reports of corporations must include detailed information and tables that summarize executive compensation.

C. Communications by a shareholder to large numbers of shareholders no longer must be filed with the SEC if the communication is not soliciting a proxy.

D. None of the above. ANSWER: D

209. A transaction in which two corporations combine such that afterwards only one corporation still exists and owns all the assets previously owned by both corporations is a

A. Merger. B. Consolidation C. Purchase of assets. D. Share exchange. ANSWER: A

210. A transaction in which two corporations combine such that afterwards neither of the combining corporations continue to exist, but that a third corporation is formed is a.

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B. Consolidation C. Purchase of assets. D. Share exchange ANSWER: D

211. A Pac-Man tender offer refers to.

A. The selling of an asset that makes the target corporation less attractive. B. The filing of suits alleging antitrust or securities violations to buy time C. The target making a tender offer for the tender offeror.

D. The merger of a smaller company into a larger company ANSWER: C

212. Which of the following allows stock holders to buy twice the value in stock to make the company too expensive to buy?

A. The poison pill

B. An Employee Stock Ownership Plan. C. Flip-over and flip-in rights plans. D. Flip-over.

ANSWER: C

213. Which of the following describes the purpose of the business judgment rule? A. Its purpose is to provide an organizational charter to run the corporation. B. . Its purpose is to challenge the unconstitutionality of the Williams Act.

C. Its purpose is to provide a basis of good faith and honesty when acting on behalf of the corporation

D. Its purpose is to protect the decisions of the board of directors, who act on an informed basis, in good faith and in honest belief that the action taken was in the best interest of the shareholders and the corporation.

ANSWER: A

214. What is the pro rata rule?

A. This rule says that any increase in price paid for shares must be offered to all shareholders. B. This rule says that shares must not be fraudulent, deceptive or manipulative

C. This rule says that shares must be purchased on a pro rata basis if too many shares are tendered. D. This rule says that shares must not be bought on a pro rata basis.

ANSWER: A

215. Which of the following is true with respect to tender offer rules?

A. The offer must be extended for 30 days if the tender offer increases the number of shares. B. The offer cannot be closed before 20 days after the commencement of the tender offer. C. No additional stock may be offered for 120 days after any tender offer.

D. Both a and b. ANSWER: B

216. Which of the following refers to a situation in which the merger results in over 25% of the market in the hands of the merged firms?

A. Share of supply test.

B. Herfindahl Hirschman Index. C. Gateway condition.

D. Assets test. ANSWER: A

217. Which of the following has the responsibility for making an initial decision as to whether a proposed merger is likely to result in a lessening of competition?

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A. Monetary Policy Committee B. Chancellor of the Exchequer C. Competition Commission (CC). D. Office of Fair Trading (OFT). ANSWER: D

218. Which of the following is responsible for investigating cases referred to it and deciding whether or not a proposed merger is in the public interest?

A. Competition Commission (CC). B. Office of Fair Trading (OFT). C. Cabinet Office.

D. Secretary of State for Trade and Industry. ANSWER: A

219. Which of the following refers to a situation in which the merger involves gross world-wide assets exceeding dollar70m in value?

A. Turnover test. B. Restrictive practice. C. Gateway condition. D. Share of supply test. ANSWER: A

220. Which of the following provides a judicial review of a mergers-decision made by the OFT, CC or Secretary of State for Trade and Industry?

A. Secretary of State for Trade and Industry. B. Competitim Appeal Tribunal (CAT). C. Competition Commission.

D. Office of Fair Trading (OFT. ANSWER: B

221. For the next five questions match each of the following descriptions of a type of merger or acquisition with its correct term. Involving a firm in the same business and at the same stage of production. A. Lateral integration B. Conglomerate integration. C. Horizontal integration D. Organic growth. ANSWER: C

222. Involving a firm in a totally unrelated business. A. Conglomerate integration.

B. Rganic growth.

C. Backward vertical integration. D. Forward integration

ANSWER: A

223. Towards the final consumer. A. Forward integration.

B. Horizontal integration. C. Lateral integration D. Organic growth. ANSWER: A

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inputs or product.

A. Backward vertical integration. B. Lateral integration.

C. Conglomerate integration . D. Organic growth.

ANSWER: B

225. Towards the raw material supplier. A. Forward vertical integration. B. Backward vertical integration. C. Lateral integration.

D. Lateral integration. ANSWER: B

226. A firm that acquires another firm as part of its strategy to sell off assets, cut costs, and operate the remaining assets more efficiently is engaging in __________.

A. A strategic acquisition B. A financial acquisition C. Two-tier tender offer. D. Shark repellent ANSWER: B

227. A would-be acquirer's offer to buy stock directly from shareholders is referred to as __________. A. A white knight.

B. A joint venture. C. A tender offer. D. A takeover. ANSWER: C

228. The restructuring of a firm should be undertaken if __________. A. The restructuring is expected to create value for shareholders.

B. The restructuring is expected to increase earnings per share (EPS) next year.

C. The restructuring is expected to increase the firm's market share power within the industry. D. The current employees will receive additional stock options to align employee interes ANSWER: A

229. Economies of scale, market share dominance, and technological advances are reasons most likely to be offered to justify a.

A. Financial acquisition B. Strategic acquisition. C. Divestiture

D. Supermajority merger approval provision. ANSWER: B

230. Suppose that the market price per share of Company A is $100 and that of Company B is $40. If A offers one-half (1/2) a share of common stock for each share of B, the exchange ratio with respect to market prices would be __________.

A. 0.40 B. 0.80 C. . 1.25 D. . 2.50 ANSWER: C

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A. Synergy.

B. Reverse synergy C. Hubris.

D. Economies of scale. ANSWER: B

232. What is the most likely reason that a firm (who is highly profitable) might consider acquiring a firm that has had large recent losses and will continue to have losses into the near future?

A. Hubris. B. White knight. C. Tax-loss usage D. Increase assets. ANSWER: C

233. Richard Roll makes a case with the __________ hypothesis that takeovers are motivated by bidder pride and confidence in their abilities relative to others.

A. Synergy.

B. Management success. C. Efficient markets. D. Hubris

ANSWER: D

234. A merger that signals to the investors in the market place a change in strategy or operating efficiency that can not be conveyed in another manner is referred to as __________.

A. The information effect. B. The wealth effect C. Strategic effect. D. Bootstrapping effect. ANSWER: A

235. . A firm that acquires another firm as part of its overall business strategy is engaging in __________.

A. Strategic acquisition. B. Financial acquisition. C. Two-tier tender offer. D. Vertical acquisition ANSWER: A

236. The average takeover premium a target firm has historically received is closest to which of the following percentages? A. 5%. B. 12%. C. . 30%. D. 80%. ANSWER: C

237. What remains after we subtract operating costs and capital expenditures necessary to at least sustain cash flows from total firm revenues?

A. Earnings before interest and taxes (EBIT). B. Net income.

C. Strategic cash flows. D. Free cash flows. ANSWER: D

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238. How should a successful acquisition be evaluated in the long-run?

A. The acquisition is successful if the market price of the acquirer's stock increases over what it would have been without the acquisitions.

B. The acquisition is successful if the acquirer is able to diversify its asset base and reduce its overall risk.

C. The acquisition is successful if the acquirer is able to reduce its debt-to-total asset ratio, and hence risk, relative to what it would have been without the acquisition.

D. The acquisition is successful if the acquirer is able to increase its earnings per share ( EPS), relative to what it would have been without the acquisition The acquisition is x.

ANSWER: A

239. What is the landmark piece of legislation designed to promote competition by combating monopolistic behaviors through antitrust law?

A. The Securities Act of 1933. B. The Securities Act of 1934. C. The Antitrust Act of 1915. D. The Clayton Act.

ANSWER: D

240. A firm can acquire another firm __________. A. Only by purchasing the assets of the target firm

B. Only by purchasing the common stock of the target firm

C. . By either purchasing the assets or the common equity of the target firm. D. Both a and b .

ANSWER: C

241. Which of the following hypotheses attempt to explain the motivation behind creating barriers to receiving unsolicited takeover offers?

A. Only the managerial entrenchment hypothesis B. Only the shareholders interest hypothesis C. Only the takeover barrier hypothesis.

D. Both the first and second answers are hypotheses that attempt to explain this motivation. ANSWER: D

242. What is a business organizational model that involves the large- scale outsourcing of business functions? A. Virtual corporation. B. Joint venture C. Corporate liquidation. D. Equity carve-out ANSWER: A

243. A bidder that offers a higher price to the first fixed quantity of shares tendered and a lower second price for all remaining shares is engaging in __________.

A. A strategic acquisition B. A financial acquisition. C. . A two-tier tender offer. D. Shark repellent.

ANSWER: A

244. How do you refer to the public sale of stock in a subsidiary in which the parent usually retains majority control?

A. Virtual corporation B. Joint venture

Figure

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References

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