Question 1

Which of the following statements is most CORRECT?

Accepted Answer

A)   A conglomerate merger is one where a firm combines with another firm in the same industry.
B)   Regulations in the United States prohibit acquiring firms from using common stock to purchase another firm.
C)   Defensive mergers are designed to make a company less vulnerable to a takeover.
D)   Answers a and b are correct.
E)   All of the answers above are correct.F) B) and E)
G) A) and B)

Question 2

A congeneric merger is one where the merging firms operate in related businesses but do not necessarily produce the same products or have a producer-supplier relationship.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is most CORRECT?

Accepted Answer

A)   The high value of the U.S. dollar relative to Japanese and European currencies in the 1980s, made U.S. companies comparatively inexpensive to foreign buyers, spurring many mergers.
B)   During the 1980s, the Reagan and Bush administrations tried to foster greater competition and they were adamant about preventing the loss of competition; thus, most large mergers were disallowed.
C)   The expansion of the junk bond market made debt more freely available for large acquisitions and LBOs in the 1980s, and thus, it resulted in an increased level of merger activity.
D)   Increased nationalization of business and a desire to scale down and focus on producing in one's home country virtually halted international mergers in the 1980s.
E)   Answers a and b are correct.F) B) and E)
G) A) and C)

Question 4

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 5

The rate used to discount projected merger cash flows should be the cost of capital of the new consolidated firm because it incorporates the actual capital structure of the new firm.

Accepted Answer

A) True 
 B)False

Question 6

The two principal advantages of holding companies are (1) the holding company can control a great deal of assets with limited equity and (2) the dividends received by the parent from the subsidiary are not taxed if the parent holds at least 50% of the subsidiary's stock.

Accepted Answer

A) True 
 B)False

Question 7

Synergistic benefits can arise from a number of different sources, including operating economies of scale, financial economies, and increased managerial efficiency.

Accepted Answer

A) True 
 B)False

Question 8

In a financial merger, the relevant post-merger cash flows are simply the sum of the expected cash flows of the 2 companies, measured as if they were operated independently.

Accepted Answer

A) True 
 B)False

Question 9

A two-tier merger offer is one where the acquiring company offers to purchase the target company in a two-part transaction. Cash is paid to some stockholders, bonds are issued to others, but the total values of each part of the transaction are equal.

Accepted Answer

A) True 
 B)False

Question 10

One of the main reasons why foreign firms are interested in buying U.S. companies is to gain entrance to the U.S. market. A decline in the value of the dollar relative to most foreign currencies makes this competitive strategy especially attractive.

Accepted Answer

A) True 
 B)False

Question 11

If the capital structure is stable, and free cash flows are expected to be growing at a constant rate at the horizon date, then the horizon value is calculated by discounting the free cash flows plus the expected future tax shields at the weighted average cost of capital.

Accepted Answer

A) True 
 B)False

Question 12

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)   $18.13
E)   $19.00F) A) and B)
G) C) and E)

Question 13

Coca-Cola's acquisition of Columbia Pictures and its announcement that it would operate its new subsidiary separately could be described as primarily a financial merger.

Accepted Answer

A) True 
 B)False

Question 14

Firms use defensive tactics to fight off undesired mergers. These tactics include

Accepted Answer

A)   raising antitrust issues.
B)   developing poison pills.
C)   getting white knights to bid for the firm.
D)   repurchasing their own stock.
E)   all of the above.F) None of the above
G) B) and E)

Exam 26: Mergers, Lbos, Divestitures, and Holding Companies

Coca-Cola's acquisition of Columbia Pictures and its announcement that it would operate its new subsidiary separately could be described as primarily a financial merger.

Correct Answer
verified

A congeneric merger is one where the merging firms operate in related businesses but do not necessarily produce the same products or have a producer-supplier relationship.

Correct Answer
verified

The two principal advantages of holding companies are (1) the holding company can control a great deal of assets with limited equity and (2) the dividends received by the parent from the subsidiary are not taxed if the parent holds at least 50% of the subsidiary's stock.

Correct Answer
verified

If the capital structure is stable, and free cash flows are expected to be growing at a constant rate at the horizon date, then the horizon value is calculated by discounting the free cash flows plus the expected future tax shields at the weighted average cost of capital.

Correct Answer
verified

Synergistic benefits can arise from a number of different sources, including operating economies of scale, financial economies, and increased managerial efficiency.

Correct Answer
verified

One of the main reasons why foreign firms are interested in buying U.S. companies is to gain entrance to the U.S. market. A decline in the value of the dollar relative to most foreign currencies makes this competitive strategy especially attractive.

Correct Answer
verified

Which of the following statements is most CORRECT?

Correct Answer
verified

In a financial merger, the relevant post-merger cash flows are simply the sum of the expected cash flows of the 2 companies, measured as if they were operated independently.

Correct Answer
verified

A two-tier merger offer is one where the acquiring company offers to purchase the target company in a two-part transaction. Cash is paid to some stockholders, bonds are issued to others, but the total values of each part of the transaction are equal.

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

Which of the following statements is most CORRECT?

Correct Answer
verified

Firms use defensive tactics to fight off undesired mergers. These tactics include

Correct Answer
verified

The rate used to discount projected merger cash flows should be the cost of capital of the new consolidated firm because it incorporates the actual capital structure of the new firm.

Correct Answer
verified

Correct Answer
verified

Exam 26: Mergers, Lbos, Divestitures, and Holding Companies

Coca-Cola's acquisition of Columbia Pictures and its announcement that it would operate its new subsidiary separately could be described as primarily a financial merger.

Correct AnswerverifiedShow Answer

A congeneric merger is one where the merging firms operate in related businesses but do not necessarily produce the same products or have a producer-supplier relationship.

Correct AnswerverifiedShow Answer

The two principal advantages of holding companies are (1) the holding company can control a great deal of assets with limited equity and (2) the dividends received by the parent from the subsidiary are not taxed if the parent holds at least 50% of the subsidiary's stock.

Correct AnswerverifiedShow Answer

If the capital structure is stable, and free cash flows are expected to be growing at a constant rate at the horizon date, then the horizon value is calculated by discounting the free cash flows plus the expected future tax shields at the weighted average cost of capital.

Correct AnswerverifiedShow Answer

Synergistic benefits can arise from a number of different sources, including operating economies of scale, financial economies, and increased managerial efficiency.

Correct AnswerverifiedShow Answer

One of the main reasons why foreign firms are interested in buying U.S. companies is to gain entrance to the U.S. market. A decline in the value of the dollar relative to most foreign currencies makes this competitive strategy especially attractive.

Correct AnswerverifiedShow Answer

Which of the following statements is most CORRECT?

Correct AnswerverifiedShow Answer

In a financial merger, the relevant post-merger cash flows are simply the sum of the expected cash flows of the 2 companies, measured as if they were operated independently.

Correct AnswerverifiedShow Answer

A two-tier merger offer is one where the acquiring company offers to purchase the target company in a two-part transaction. Cash is paid to some stockholders, bonds are issued to others, but the total values of each part of the transaction are equal.

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

Which of the following statements is most CORRECT?

Correct AnswerverifiedShow Answer

Firms use defensive tactics to fight off undesired mergers. These tactics include

Correct AnswerverifiedShow Answer

The rate used to discount projected merger cash flows should be the cost of capital of the new consolidated firm because it incorporates the actual capital structure of the new firm.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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