Question 1

Diet Soda and High Caffeine are two firms that compete in the soft drink market.These two competitors have decided to invest $10 million to form a new company,Fruit Tea,which will manufacture flavored teas.This new firm is defined as a:

Accepted Answer

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

Question 2

In a tax-free acquisition,the shareholders of the target firm:

Accepted Answer

A)  receive income which 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 shares on a dollar-for-dollar basis.
D)  sell their shares to a qualifying entity thereby avoiding both income and capital gains taxes.
E)  sell their shares at cost thereby avoiding the capital gains tax.F) A) and D)
G) B) and C)

Question 3

Which one of the following statements correctly applies to a legally defined merger?

Accepted Answer

A)  The acquiring firm retains its identity and absorbs only the assets of the acquired firm.
B)  The acquired firm is completely absorbed and ceases to exist as a separate legal entity.
C)  A new firm is created which includes all the assets and liabilities of the acquiring firm plus the assets only of the acquired firm.
D)  A new firm is created from the assets and liabilities of both the acquiring and acquired firms.
E)  A merger reclassifies the acquired firm into a new entity which becomes a subsidiary of the acquiring firm.F) A) and B)
G) None of the above

Question 4

Assume the following balance sheets are stated at book value.  What will be the value of the equity account on the postmerger balance sheet assuming that Meat Co.purchases Loaf,Inc.and the pooling of interests method of accounting is used.

Accepted Answer

A)  $26,700
B)  $33,600
C)  $38,300
D)  $39,200
E)  $46,100F) A) and C)
G) All of the above

Question 5

Which of the following are examples of cost reductions that can result from an acquisition?
I.allocating fixed overhead across a wider range of products
II.lowering office payroll costs by combining job functions
III.benefiting from economies of scale when purchasing raw materials
IV.reducing the number of management personnel required

Accepted Answer

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

Question 6

Last month,Keyser Design acquired all of the assets and liabilities of Tenor Machine Works.The combined firm is known as Keyser Design.Tenor Machine Works no longer exists as a separate entity.This acquisition is best described as a:

Accepted Answer

A)  merger.
B)  consolidation.
C)  tender offer.
D)  spinoff.
E)  divestiture.F) B) and C)
G) All of the above

Question 7

Nieger Mills engages in farming,trucking of farm products,and the milling and retailing of farm grains.The firm has decided to sell its farming operations to Jasper Farms.This sale is referred to as a(n) :

Accepted Answer

A)  liquidation.
B)  divestiture.
C)  merger.
D)  allocation.
E)  restructuring.F) A) and E)
G) None of the above

Question 8

Which of the following have been suggested as reasons why the stockholders in acquiring firms may not benefit to any significant degree from an acquisition?
I.the price paid for the target firm might equal the target firm's total value
II.management may have priorities other than the interest of the stockholders
III.the takeover market may not be competitive
IV.anticipated merger gains may not be fully achieved

Accepted Answer

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

Question 9

The Town Crier and The News Express are all-equity firms.The Town Crier has 11,500 shares outstanding at a market price of $26 a share.The News Express has 15,000 shares outstanding at a price of $31 a share.The News Express is acquiring The Town Crier.The incremental value of the acquisition is $4,500.What is the value of The Town Crier to The News Express?

Accepted Answer

A)  $57,500
B)  $75,000
C)  $87,000
D)  $299,000
E)  $303,500F) C) and E)
G) C) and D)

Question 10

A group of individual investors is in the process of acquiring all of the publicly-traded shares of OM Outfitters.Once the shares are acquired,they will no longer be publicly traded.Which of the following terms applies to this process?

Accepted Answer

A)  tender offer
B)  proxy contest
C)  going-private transaction
D)  leveraged buyout
E)  consolidationF) C) and D)
G) A) and D)

Question 11

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 amortized on a yearly basis for financial statement purposes.
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) None of the above
G) B) and C)

Question 12

Which of the following represent potential gains from an acquisition?
I.increased use of debt
II.lower costs per unit produced
III.strategic beachhead
IV.diseconomies of scale

Accepted Answer

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

Question 13

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) C) and D)
G) A) and E)

Question 14

An auto maker recently acquired a windshield manufacturer.Which type of an acquisition was this?

Accepted Answer

A)  horizontal
B)  longitudinal
C)  conglomerate
D)  vertical
E)  indirectF) A) and B)
G) A) and C)

Question 15

Which one of the following statements is correct?

Accepted Answer

A)  The shareholders of an acquired firm are generally given a choice of accepting either cash or shares of stock when the acquisition is tax-free.
B)  To be a tax-free acquisition, the shareholders of an acquired firm must receive shares in the acquiring firm that are equal to 95 percent or less of the value of the shares held in the acquired firm.
C)  The assets of an acquired firm are recorded on the books of the acquiring firm at their current book value regardless of the tax status of the acquisition.
D)  Target firm shareholders demand a higher selling price when an acquisition is a non-taxable event.
E)  If the assets of a firm are written up as part of the acquisition process, the increase in value is considered to be a taxable gain.F) A) and B)
G) None of the above

Question 16

Family Travel Plans is the sole shareholder in its subsidiary,Traveler's Insurance Co.Family Travel Plans has decided to divest itself of its insurance operations and does so by distributing the shares in the subsidiary to the shareholders of Family Travel Plans.This distribution of shares is called a(n) :

Accepted Answer

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

Question 17

Alliance Chemicals recently acquired Swenson Industries in a transaction that produced a NPV of $1.3 million.This NPV is referred to as:

Accepted Answer

A)  the agency effect.
B)  the consolidating value.
C)  diversification.
D)  the consolidation effect.
E)  synergy.F) All of the above
G) D) and E)

Question 18

Firms can frequently create synergy by merging and sharing complementary resources with another firm.Give two examples of situations where this would most likely occur.

Accepted Answer

Student examples will vary but should di...

Question 19

Identify the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Accepted Answer

The three forms are merger,acquisition o...

Question 20

Which of the following represent potential tax benefits that can directly result from an acquisition?
I.an increase in depreciation expense
II.an increase in surplus funds
III.the use of net operating losses
IV.an increased use of leverage

Accepted Answer

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

Exam 26: Mergers and Acquisitions

Identify the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Correct Answer
verified
The three forms are merger,acquisition o...
View Answer

Alliance Chemicals recently acquired Swenson Industries in a transaction that produced a NPV of $1.3 million.This NPV is referred to as:

Correct Answer
verified

Firms can frequently create synergy by merging and sharing complementary resources with another firm.Give two examples of situations where this would most likely occur.

Correct Answer
verified
Student examples will vary but should di...
View Answer

Correct Answer
verified

Which of the following represent potential tax benefits that can directly result from an acquisition? I.an increase in depreciation expense II.an increase in surplus funds III.the use of net operating losses IV.an increased use of leverage

Correct Answer
verified

Correct Answer
verified

A group of individual investors is in the process of acquiring all of the publicly-traded shares of OM Outfitters.Once the shares are acquired,they will no longer be publicly traded.Which of the following terms applies to this process?

Correct Answer
verified

In a tax-free acquisition,the shareholders of the target firm:

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Nieger Mills engages in farming,trucking of farm products,and the milling and retailing of farm grains.The firm has decided to sell its farming operations to Jasper Farms.This sale is referred to as a(n) :

Correct Answer
verified

Correct Answer
verified

An auto maker recently acquired a windshield manufacturer.Which type of an acquisition was this?

Correct Answer
verified

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

Correct Answer
verified

Assume the following balance sheets are stated at book value. What will be the value of the equity account on the postmerger balance sheet assuming that Meat Co.purchases Loaf,Inc.and the pooling of interests method of accounting is used.

Correct Answer
verified

Correct Answer
verified

Which one of the following statements correctly applies to a legally defined merger?

Correct Answer
verified

Which of the following represent potential gains from an acquisition? I.increased use of debt II.lower costs per unit produced III.strategic beachhead IV.diseconomies of scale

Correct Answer
verified

Last month,Keyser Design acquired all of the assets and liabilities of Tenor Machine Works.The combined firm is known as Keyser Design.Tenor Machine Works no longer exists as a separate entity.This acquisition is best described as a:

Correct Answer
verified

The purchase accounting method requires that:

Correct Answer
verified

Diet Soda and High Caffeine are two firms that compete in the soft drink market.These two competitors have decided to invest $10 million to form a new company,Fruit Tea,which will manufacture flavored teas.This new firm is defined as a:

Correct Answer
verified

Exam 26: Mergers and Acquisitions

Identify the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Correct AnswerverifiedThe three forms are merger,acquisition o...View AnswerShow Answer

Alliance Chemicals recently acquired Swenson Industries in a transaction that produced a NPV of $1.3 million.This NPV is referred to as:

Correct AnswerverifiedShow Answer

Firms can frequently create synergy by merging and sharing complementary resources with another firm.Give two examples of situations where this would most likely occur.

Correct AnswerverifiedStudent examples will vary but should di...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following represent potential tax benefits that can directly result from an acquisition? I.an increase in depreciation expense II.an increase in surplus funds III.the use of net operating losses IV.an increased use of leverage

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A group of individual investors is in the process of acquiring all of the publicly-traded shares of OM Outfitters.Once the shares are acquired,they will no longer be publicly traded.Which of the following terms applies to this process?

Correct AnswerverifiedShow Answer

In a tax-free acquisition,the shareholders of the target firm:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Nieger Mills engages in farming,trucking of farm products,and the milling and retailing of farm grains.The firm has decided to sell its farming operations to Jasper Farms.This sale is referred to as a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An auto maker recently acquired a windshield manufacturer.Which type of an acquisition was this?

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

Assume the following balance sheets are stated at book value. What will be the value of the equity account on the postmerger balance sheet assuming that Meat Co.purchases Loaf,Inc.and the pooling of interests method of accounting is used.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements correctly applies to a legally defined merger?

Correct AnswerverifiedShow Answer

Which of the following represent potential gains from an acquisition? I.increased use of debt II.lower costs per unit produced III.strategic beachhead IV.diseconomies of scale

Correct AnswerverifiedShow Answer

Last month,Keyser Design acquired all of the assets and liabilities of Tenor Machine Works.The combined firm is known as Keyser Design.Tenor Machine Works no longer exists as a separate entity.This acquisition is best described as a:

Correct AnswerverifiedShow Answer

The purchase accounting method requires that:

Correct AnswerverifiedShow Answer

Diet Soda and High Caffeine are two firms that compete in the soft drink market.These two competitors have decided to invest $10 million to form a new company,Fruit Tea,which will manufacture flavored teas.This new firm is defined as a:

Correct AnswerverifiedShow Answer

Correct Answer
verified
The three forms are merger,acquisition o...
View Answer

Correct Answer
verified

Correct Answer
verified
Student examples will vary but should di...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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