Question 1

Troyer Markets and Deb's Grocery are all-equity firms.Troyer Markets has 2,400 shares outstanding at a market price of $14.80 a share.Deb's Grocery has 3,200 shares outstanding at a price of $28 a share.Deb's Grocery is acquiring Troyer Markets for $37,500 in cash.What is the merger premium per share?

Accepted Answer

A)  $0
B)  $0.825
C)  $1.108
D)  $1.216
E)  $1.320F) A) and B)
G) A) and C)

Question 2

Assume the shareholders of a target firm benefit from being acquired in a stock transaction.Given this,these shareholders are most apt to realize the largest benefit if the:

Accepted Answer

A)  acquiring firm has the better management team and replaces the target firm's managers.
B)  management of the target firm is more efficient than the management of the acquiring firm which replaces them.
C)  management of both the acquiring firm and the target firm are as equivalent as possible.
D)  current management team of the target firm is kept in place even though the managers of the acquiring firm are more suited to manage the target firm's situation.
E)  current management team of the target firm is technologically knowledgeable but yet ineffective.F) D) and E)
G) None of the above

Question 3

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

Accepted Answer

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

Question 4

Which one of the following pairs of businesses could probably benefit the most by sharing complementary resources?

Accepted Answer

A)  roofer and architect
B)  tennis court and pharmacy
C)  ski resort and golf course
D)  dry cleaner and maid service
E)  trucking company and lawn serviceF) D) and E)
G) A) and E)

Question 5

A potential merger which produces synergy:

Accepted Answer

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

Question 6

Biltwell Hotels is acquiring all of the assets of Green Roof Inns.As a result,Green Roof Inns:

Accepted Answer

A)  will become a fully owned subsidiary of Biltwell Hotels.
B)  will remain as a shell corporation unless the shareholders opt to dissolve it.
C)  will be fully merged into Biltwell Hotels and will no longer exist as a separate entity.
D)  and Biltwell Hotels will both cease to exist and a new firm will be formed.
E)  will automatically be dissolved.F) D) and E)
G) A) and B)

Question 7

Which of the following is a form of a takeover?
I.tender offer
II.merger
III.proxy contest
IV.going private transaction

Accepted Answer

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

Question 8

Which one of the following best defines synergy given the following?
VA = Value of firm A
VB = Value of firm B
VAB = Value of merged firm AB

Accepted Answer

A)  (VA + V
B)   - VAB
B)  VAB - (VA + V
B)  
C)  greater of 0 or (VA + V
B)   - VAB
D)  greater of 0 or VAB - (VA + V
B)  
E)  greater of 0 or VABF) A) and E)
G) None of the above

Question 9

The Floral Shoppe and Maggie's Flowers are all-equity firms.The Floral Shoppe has 2,500 shares outstanding at a market price of $16.50 a share.Maggie's Flowers has 5,000 shares outstanding at a price of $17 a share.Maggie's Flowers is acquiring The Floral Shoppe for $42,900 in cash.The incremental value of the acquisition is $1,200.What is the net present value of acquiring The Floral Shoppe to Maggie's Flowers?

Accepted Answer

A)  -$450
B)  $275
C)  $500
D)  $2,400
E)  $3,700F) All of the above
G) A) and B)

Question 10

Pearl,Inc.has offered $920 million cash for all of the common stock in Jam Corporation.Based on recent market information,Jam is worth $710 million as an independent operation.For the merger to make economic sense for Pearl,what would the minimum estimated value of the synergistic benefits from the merger have to be?

Accepted Answer

A)  $0
B)  $75 million
C)  $210 million
D)  $710 million
E)  $920 millionF) B) and E)
G) A) and D)

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

A)  consolidation.
B)  merged alliance.
C)  joint venture.
D)  takeover project.
E)  strategic alliance.F) All of the above
G) B) and D)

Question 13

If a firm sells its crown jewels when threatened with a takeover attempt,the firm is employing a strategy commonly referred to as a _____ strategy.

Accepted Answer

A)  scorched earth
B)  shark repellent
C)  bear hug
D)  white knight
E)  lockupF) D) and E)
G) C) and E)

Question 14

Which of the following are required for an acquisition to be considered tax-free?
I.continuity of equity interest
II.a business purpose,other than avoiding taxes,for the acquisition
III.payment in the form of equity shares for the acquired firm
IV.cash payment for the equity of the acquired firm

Accepted Answer

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

Question 15

The pooling of interests method of accounting:
I.creates an account called goodwill which is recorded on the balance sheet of the merged firm.
II.consists of simply combining the balance sheets of the acquiring and the target firm.
III.is currently the accounting method required by FASB for all cash acquisitions.
IV.recognizes the excess of the purchase price over the fair market value and records that excess as an asset of the acquiring firm.

Accepted Answer

A)  I only
B)  II only
C)  I and IV only
D)  II and III only
E)  I, II, and IV onlyF) A) and D)
G) All of the above

Question 16

In a merger the:

Accepted Answer

A)  legal status of both the acquiring firm and the target firm is terminated.
B)  acquiring firm retains its pre-merger legal status.
C)  acquiring firm acquires the assets, but not the liabilities, of the target firm.
D)  shareholders of the target firm have little, if any, say as to whether or not the merger occurs.
E)  target firm continues to exist but will be a wholly owned subsidiary of the acquiring firm.F) B) and E)
G) A) and B)

Question 17

The Cycle Stop has 1,600 shares outstanding at a market price per share of $8.48.Kate's Wheels has 1,750 shares outstanding at a market price of $13 a share.Neither firm has any debt.Kate's Wheels is acquiring The Cycle Stop for $15,000 in cash.What is the merger premium per share?

Accepted Answer

A)  $0.27
B)  $0.46
C)  $0.90
D)  $1.43
E)  $2.52F) B) and E)
G) D) and E)

Question 18

Consider the following premerger information about Firm A and Firm B:   Firm A  Firm B  Total earnings $930$650 Shares outstanding 620210 Price per share $40$20\begin{array} { l r r } &  { 	ext { Firm A } } & { 	ext { Firm B } } \ 	ext { Total earnings } & \$ 930 & \$ 650 \	ext { Shares outstanding } & 620 & 210 \	ext { Price per share } & \$ 40 & \$ 20\end{array} Total earnings  Shares outstanding  Price per share ​ Firm A $930620$40​ Firm B $650210$20​  Assume that Firm A acquires Firm B via an exchange of stock at a price of $25 for each share of B's stock.Both A and B have no debt outstanding.What will the earnings per share of Firm A be after the merger?

Accepted Answer

A)  $1.60
B)  $1.86
C)  $1.95
D)  $2.02
E)  $2.10 F) B) and E)
G) A) and D)

Question 19

Firm A is acquiring Firm B for $75,000 in cash.Firm A has 4,500 shares of stock outstanding at a market value of $27 a share.Firm B has 2,500 shares of stock outstanding at a market price of $29 a share.Neither firm has any debt.The incremental value of the acquisition is $2,200.What is the price per share of Firm A's stock after the acquisition?

Accepted Answer

A)  $25.98
B)  $26.45
C)  $26.93
D)  $27.00
E)  $27.33F) A) and E)
G) C) and D)

Question 20

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

Accepted Answer

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

Exam 26: Mergers and Acquisitions

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Which one of the following best defines synergy given the following? V_A = Value of firm A V_B = Value of firm B V_AB = Value of merged firm AB

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In a merger the:

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The Cycle Stop has 1,600 shares outstanding at a market price per share of $8.48.Kate's Wheels has 1,750 shares outstanding at a market price of $13 a share.Neither firm has any debt.Kate's Wheels is acquiring The Cycle Stop for $15,000 in cash.What is the merger premium per share?

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

Correct Answer
verified

Correct Answer
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Which of the following are required for an acquisition to be considered tax-free? I.continuity of equity interest II.a business purpose,other than avoiding taxes,for the acquisition III.payment in the form of equity shares for the acquired firm IV.cash payment for the equity of the acquired firm

Correct Answer
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Which of the following is a form of a takeover? I.tender offer II.merger III.proxy contest IV.going private transaction

Correct Answer
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Correct Answer
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If a firm sells its crown jewels when threatened with a takeover attempt,the firm is employing a strategy commonly referred to as a _____ strategy.

Correct Answer
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A potential merger which produces synergy:

Correct Answer
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Which one of the following pairs of businesses could probably benefit the most by sharing complementary resources?

Correct Answer
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Correct Answer
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Biltwell Hotels is acquiring all of the assets of Green Roof Inns.As a result,Green Roof Inns:

Correct Answer
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Assume the shareholders of a target firm benefit from being acquired in a stock transaction.Given this,these shareholders are most apt to realize the largest benefit if the:

Correct Answer
verified

Correct Answer
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Exam 26: Mergers and Acquisitions

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following best defines synergy given the following? VA = Value of firm A VB = Value of firm B VAB = Value of merged firm AB

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a merger the:

Correct AnswerverifiedShow Answer

The Cycle Stop has 1,600 shares outstanding at a market price per share of $8.48.Kate's Wheels has 1,750 shares outstanding at a market price of $13 a share.Neither firm has any debt.Kate's Wheels is acquiring The Cycle Stop for $15,000 in cash.What is the merger premium per share?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following are required for an acquisition to be considered tax-free? I.continuity of equity interest II.a business purpose,other than avoiding taxes,for the acquisition III.payment in the form of equity shares for the acquired firm IV.cash payment for the equity of the acquired firm

Correct AnswerverifiedShow Answer

Which of the following is a form of a takeover? I.tender offer II.merger III.proxy contest IV.going private transaction

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm sells its crown jewels when threatened with a takeover attempt,the firm is employing a strategy commonly referred to as a _____ strategy.

Correct AnswerverifiedShow Answer

A potential merger which produces synergy:

Correct AnswerverifiedShow Answer

Which one of the following pairs of businesses could probably benefit the most by sharing complementary resources?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Biltwell Hotels is acquiring all of the assets of Green Roof Inns.As a result,Green Roof Inns:

Correct AnswerverifiedShow Answer

Assume the shareholders of a target firm benefit from being acquired in a stock transaction.Given this,these shareholders are most apt to realize the largest benefit if the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Which one of the following best defines synergy given the following? V_A = Value of firm A V_B = Value of firm B V_AB = Value of merged firm AB

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