Question 1

The complete absorption of one company by another, where the acquiring firm retains its identity and the acquired firm ceases to exist, is called a __________.

Accepted Answer

A)   Merger.
B)   Consolidation.
C)   Tender offer.
D)   Spinoff.
E)   Divestiture.F) A) and B)
G) C) and D)

Question 2

Provide four tax advantages provided in an acquisition.

Accepted Answer

1. The use of tax losses; 2. T...

Question 3

Which of the following is the best definition of a spin-off?

Accepted Answer

A)   The splitting up of a company into two or more companies.
B)   The distribution of shares in a subsidiary to existing parent company shareholders.
C)   Provisions allowing existing shareholders to purchase stock at some fixed price should an outside takeover bid take place, discouraging hostile takeover attempts.
D)   Attempts to gain control of a firm by soliciting a sufficient number of shareholder votes to replace existing management.
E)   A financial device designed to make unfriendly takeover attempts unappealing, if not impossible.F) A) and D)
G) C) and E)

Question 4

The purchase accounting method requires that:

Accepted Answer

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 included as a current liability.
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.
E)   The excess amount paid for the target firm be recorded as a tangible asset on the books of the acquiring firm.F) B) and E)
G) B) and D)

Question 5

Watson's Office Supply has agreed to be acquired by New Concepts for $30,000 worth of New Concepts stock. New Concepts currently has 2,300 shares of stock outstanding at a price of $24 a share. Watson's has 1,300 shares outstanding at a price of $21. The incremental value of the acquisition is $1,200. What is the valued of the merged firm?

Accepted Answer

A)   $55,200
B)   $56,400
C)   $81,500
D)   $83,700
E)   $91,900F) C) and D)
G) A) and D)

Question 6

Unused debt capacity refers to synergistic gains due to tax benefits in an acquisition.

Accepted Answer

A) True 
 B)False

Question 7

Winslow Co. has agreed to be acquired by Ferrier, Inc. for $25,000 worth of Ferrier stock. Ferrier currently has 1,500 shares of stock outstanding at a price of $21 a share. Winslow has 1,000 shares outstanding at a price of $22. The incremental value of the acquisition is $4,000. What is the value of Winslow Co. to Ferrier, Inc.?

Accepted Answer

A)   $24,000
B)   $25,000
C)   $26,000
D)   $28,000
E)   $29,000F) A) and B)
G) A) and E)

Question 8

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n) :

Accepted Answer

A)   Lockup transaction.
B)   Bear hug.
C)   Equity carve-out.
D)   Spin-off.
E)   Split-up.F) C) and D)
G) B) and E)

Question 9

Which one of the following statements is correct?

Accepted Answer

A)   Acquiring firms tend to avoid firms with large net operating losses when they are seeking a target firm to acquire.
B)   If an acquisition increases the debt level of a firm the tax liability of the firm tends to increase as a result.
C)   If either an increase or a decrease in the level of production causes the average cost per unit to increase the firm is currently operating at its optimal size.
D)   Firms can always benefit from economies of scale if they increase the size of their firm through acquisitions.
E)   If a firm uses its surplus cash to acquire another firm the shareholders of the acquiring firm immediately incur a tax liability related to the transaction.F) A) and B)
G) None of the above

Question 10

The incremental gain from a merger is defined as the:

Accepted Answer

A)   Stand-alone value of the target firm minus the synergistic effects.
B)   Value of the combined firm minus the sum of the stand-alone values of each firm.
C)   Stand-alone value of the acquired firm minus the acquisition costs.
D)   The sum of the stand-alone values of both firms minus the acquisition costs.
E)   The value of the purchasing firm plus the synergistic effects minus the acquisition costs.F) A) and C)
G) B) and D)

Question 11

A feature of the purchase method of accounting includes the difference between the purchase price and the estimated fair market value of the net assets of the target firm must be classified as goodwill and recorded on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 12

A targeted stock repurchase of the firm directed at a potential bidder to discourage an unfriendly takeover attempt is called (a) :

Accepted Answer

A)   Golden parachute.
B)   Standstill.
C)   Greenmail.
D)   Poison pill.
E)   White knight.F) All of the above
G) A) and D)

Question 13

Defensive merger tactics are designed to thwart unwanted takeovers and mergers. Do such activities work to the advantage of stockholders all of the time? Are these types of activities ethical? Who do you think benefits most from these activities?

Accepted Answer

Good students will recognize that defens...

Question 14

If a firm makes an acquisition to exploit perceived opportunities in a new industry, it is expecting ____________________ as a result of the purchase.

Accepted Answer

A)   Enhanced marketing strength.
B)   Strategic benefits.
C)   Economies of scale.
D)   Tax gains.
E)   Enhanced market power.F) A) and E)
G) A) and D)

Question 15

Jane's Footwear is planning on merging with Trailer Shoes. Jane's Footwear will pay Trailer Shoes' shareholders the current value of their stock in shares of Jane's Footwear stock. Jane's Footwear currently has 4,700 shares of stock outstanding at a market price of $25 a share. Trailer Shoes has 2,500 shares outstanding at a price of $31 a share. How many shares of stock will be outstanding in the merged firm?

Accepted Answer

A)   3,100 shares
B)   4,700 shares
C)   7,200 shares
D)   7,800 shares
E)   10,300 sharesF) A) and B)
G) B) and D)

Question 16

A common reason why the management of a newly merged firm will opt to divest some of its operations is to raise cash.

Accepted Answer

A) True 
 B)False

Question 17

Andre's Breads and Butter Top are all-equity firms. Andre's has 800 shares outstanding at a market price of $56 a share. Butter Top has 2,400 shares outstanding at a price of $37 a share. Butter Top is acquiring Andre's Breads for $47,500 in cash. The incremental value of the acquisition is $4,200. What is the net present value of acquiring Andre's Breads to Butter Top?

Accepted Answer

A)   $950
B)   $1,500
C)   $2,700
D)   $4,200
E)   $5,700F) B) and C)
G) A) and E)

Question 18

The fair market value of the fixed assets of Markco, Inc. is $8,500.
Big-T paid $13,000 for Markco, Inc. with funds from a long-term debt offering. The purchase method of accounting is used.
What is the amount of goodwill on the books of Big-T as a result of the merger?

Accepted Answer

A)   $2,000
B)   $4,500
C)   $5,000
D)   $7,000
E)   $9,000F) A) and D)
G) A) and E)

Question 19

The net present value of an acquisition should have no bearing on whether or not the acquisition occurs.

Accepted Answer

A) True 
 B)False

Question 20

Both firms are 100% equity-financed. Firm A can acquire firm B for $82,500 in the form of either cash or stock. The synergy value of the deal is $12,500.  What is the value of the post-merger firm following a cash acquisition?

Accepted Answer

A)   $255,000
B)   $262,500
C)   $337,500
D)   $650,000
E)   $672,525F) B) and E)
G) A) and D)

Exam 23: Mergers and Acquisitions

Correct Answer
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Both firms are 100% equity-financed. Firm A can acquire firm B for $82,500 in the form of either cash or stock. The synergy value of the deal is $12,500. What is the value of the post-merger firm following a cash acquisition?

Correct Answer
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The complete absorption of one company by another, where the acquiring firm retains its identity and the acquired firm ceases to exist, is called a __________.

Correct Answer
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Defensive merger tactics are designed to thwart unwanted takeovers and mergers. Do such activities work to the advantage of stockholders all of the time? Are these types of activities ethical? Who do you think benefits most from these activities?

Correct Answer
verified
Good students will recognize that defens...
View Answer

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n) :

Correct Answer
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A feature of the purchase method of accounting includes the difference between the purchase price and the estimated fair market value of the net assets of the target firm must be classified as goodwill and recorded on the balance sheet.

Correct Answer
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The incremental gain from a merger is defined as the:

Correct Answer
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The fair market value of the fixed assets of Markco, Inc. is $8,500. Big-T paid $13,000 for Markco, Inc. with funds from a long-term debt offering. The purchase method of accounting is used. What is the amount of goodwill on the books of Big-T as a result of the merger?

Correct Answer
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Which of the following is the best definition of a spin-off?

Correct Answer
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If a firm makes an acquisition to exploit perceived opportunities in a new industry, it is expecting ____________________ as a result of the purchase.

Correct Answer
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A targeted stock repurchase of the firm directed at a potential bidder to discourage an unfriendly takeover attempt is called (a) :

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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The purchase accounting method requires that:

Correct Answer
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Correct Answer
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Unused debt capacity refers to synergistic gains due to tax benefits in an acquisition.

Correct Answer
verified

Provide four tax advantages provided in an acquisition.

Correct Answer
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1. The use of tax losses; 2. T...
View Answer

The net present value of an acquisition should have no bearing on whether or not the acquisition occurs.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A common reason why the management of a newly merged firm will opt to divest some of its operations is to raise cash.

Correct Answer
verified

Exam 23: Mergers and Acquisitions

Correct AnswerverifiedShow Answer

Both firms are 100% equity-financed. Firm A can acquire firm B for $82,500 in the form of either cash or stock. The synergy value of the deal is $12,500. What is the value of the post-merger firm following a cash acquisition?

Correct AnswerverifiedShow Answer

The complete absorption of one company by another, where the acquiring firm retains its identity and the acquired firm ceases to exist, is called a __________.

Correct AnswerverifiedShow Answer

Defensive merger tactics are designed to thwart unwanted takeovers and mergers. Do such activities work to the advantage of stockholders all of the time? Are these types of activities ethical? Who do you think benefits most from these activities?

Correct AnswerverifiedGood students will recognize that defens...View AnswerShow Answer

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n) :

Correct AnswerverifiedShow Answer

A feature of the purchase method of accounting includes the difference between the purchase price and the estimated fair market value of the net assets of the target firm must be classified as goodwill and recorded on the balance sheet.

Correct AnswerverifiedShow Answer

The incremental gain from a merger is defined as the:

Correct AnswerverifiedShow Answer

The fair market value of the fixed assets of Markco, Inc. is $8,500. Big-T paid $13,000 for Markco, Inc. with funds from a long-term debt offering. The purchase method of accounting is used. What is the amount of goodwill on the books of Big-T as a result of the merger?

Correct AnswerverifiedShow Answer

Which of the following is the best definition of a spin-off?

Correct AnswerverifiedShow Answer

If a firm makes an acquisition to exploit perceived opportunities in a new industry, it is expecting ____________________ as a result of the purchase.

Correct AnswerverifiedShow Answer

A targeted stock repurchase of the firm directed at a potential bidder to discourage an unfriendly takeover attempt is called (a) :

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

The purchase accounting method requires that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Unused debt capacity refers to synergistic gains due to tax benefits in an acquisition.

Correct AnswerverifiedShow Answer

Provide four tax advantages provided in an acquisition.

Correct Answerverified1. The use of tax losses; 2. T...View AnswerShow Answer

The net present value of an acquisition should have no bearing on whether or not the acquisition occurs.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A common reason why the management of a newly merged firm will opt to divest some of its operations is to raise cash.

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Good students will recognize that defens...
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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1. The use of tax losses; 2. T...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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