1.)When an outside group acquires a firm, primarily through the use of borrowed funds,
the acquisition is known as a:
management buy-out.
tender offer.
leveraged buy-out.
successful proxy fight.
2) A spinoff is an action in which:
the management bids for and acquires the firm.
one firm issues stock to acquire another firm.
successful product lines are sold to competitors.
a portion of the firm's assets (like a division) are sold off to form a new company.
3) When a firm's management takes the firm private with the aid of substantial debt it is
known as a(n.:
tender offer.
greenmail offer.
MBO.
hostile takeover.
4) A conglomerate merger occurs when:
both partners are large in size.
large synergies are expected to develop.
firms from different industries merge.
both management teams remain intact after the merger.
5) In which of the following ways can the management teams of many corporations influence
the board of directors?
By merging with another firm
Through appointment of shareholders to replace current board members
Through management's nomination of board candidates
By declaring a liquidating cash dividend
6) Large-scale efforts to make a firm less appealing in the midst of a potential merger
are known as:
proxy fights.
leveraged buy-outs.
shark repellents.
poison pills.
7) Diversification is often a poor motive for mergers because:
vertical integration is rarely successful.
investors can diversify on their own account.
it does not produce economies of scale.
the increase in taxes overcomes gains in earnings.
8) Proxy fights are conducted in order to achieve a goal of:
changing the corporate charter.
bringing about economies of scale.
replacing the current board and management team.
having a public tender offer.
9) One of the main reasons why proxy fights are rarely successful is that:
management is always viewed as performing their jobs well.
management can use corporate resources to defend against the fight.
mergers are a cheaper form of changing management.
shareholders are unconcerned with corporate management.
10) Which of the following is not a money market instrument?
Treasury bills
Commercial paper
Negotiable certificates of deposit
Treasury bonds
11) The interest rate on convertibles is generally ____________ the interest rate on
similar nonconvertible instruments.
greater than
less than
the same as
at least twice
12) The conversion ratio is the
price at which a convertible security is exchanged into common stock.
ratio of conversion value to market value of a convertible security.
number of shares of common stock into which the convertible may be converted.
ratio of the conversion premium to market value of a convertible security.
13) The purpose of secondary trading is to
provide liquidity and competition between investments.
provide a market for securities not handled in primary trading.
provide jobs for brokers and dealers.
provide lower commissions than on the organized exchanges.
14) Global capital markets are influenced by
interest rates.
investor confidence.
relative economic growth.
all of the above.
15) A convertible security is almost always
a security that can be converted into any other type of security.
a debt security that can be converted into preferred stock.
a security that can be converted into common stock at the holder's option.
a security that can be converted into common stock at the option of the issuing
corporation.
16) The computation of basic earnings per share will include consideration of
all convertible securities.
only shares outstanding.
shares outstanding and common stock equivalents.
only common stock equivalents .
17) The basic difference between brokers and dealers is that
brokers can trade only on organized exchanges and dealers can trade only over-the-counter.
brokers own the securities they trade and dealers act as agent for buyer and seller.
dealers own the securities they trade and brokers act as agent for buyer and seller.
there is no difference.
18) The bulk of all bond trading is generally done
on the NYSE.
on the regional exchanges.
over-the-counter.
on the New York Bond Exchange.
19) Conversion price is usually set_______ the prevailing market price of the common stock
at the time the bond issue is sold.
at
below
above
one half
20) When shareholders attempt to garner additional votes in an attempt to oust management,
it is called a:
management buy-out.
tender offer.
proxy contest.
poison pill.
21) The elimination of overlapping functions and the meshing of two firms' strong areas or
products creates the managerial incentive for mergers known as
horizontal integration.
vertical integration.
synergy.
the portfolio effect.
22) When a tobacco firm merges with a steel company, it would called
a horizontal merger.
a vertical merger.
a conglomerate merger.
a consolidation.
23) An example of a horizontal merger would be
Pepsi and Sears.
McDonalds and Pillsbury.
Pepsi and Frito Lay.
Coca Cola and Dr. Pepper.
24) A business combination of two or more companies in which the resulting firm maintains
the identity of the acquiring company is defined as a
consolidation.
holding company.
conglomerate.
merger.
.
25) In planning mergers, there is a tendency to _____ synergistic benefits.
overestimate.
underestimate
correctly estimate
not estimate
26) A tender offer is one in which the firm's:
management offers to sell the company to an acquirer or other group.
board of directors offers to sell the company to the public.
shareholders are propositioned to sell their shares to outsiders.
management offers to buy all outstanding shares of the corporation.
27) Synergy is said to occur when the whole is
equal to the sum of the parts.
less than the sum of the parts.
greater than the sum of the parts.
greater than or equal to the sum of the parts.
28) The track record for proxy fights suggests they are:
usually successful in forcing management out.
only successful when accompanied by a tender offer.
rarely effective in taking over management.
the first step in a hostile takeover.
29) When one firm merges with another, the:
boards of directors will merge also.
merger must be approved by 75% of the shareholders of the target firm.
merger must be approved by at least 50% of the shareholders of the target firm.
target firm will cease to exist
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