Which type of merger is most likely to lead to diversification benefits? A. Horizontal merger B. Vertical merger C. Tax free exchange D. Conglomerate Question 2 of 20 5.0 Points Which of the following is NOT a potential benefit of a merger? A. Improved Financing Posture B. Portfolio Effect C. Dilution of Earnings Per Share D. Tax Loss Carryforward Question 3 of 20 5.0 Points The financial motives for merger activity include all of following EXCEPT: A. the portfolio effect. B. improved financial posture and greater debt. C. the utilization of tax loss carryforwards. D. vertical integration. Question 4 of 20 5.0 Points Which of the following is not a financial motive but rather an operating motive for merger and consolidation? A. The portfolio diversification effect B. Tax-loss carryforward C. Greater financing capability D. Synergy Question 5 of 20 5.0 Points The elimination of overlapping functions and the meshing of two firms' strong areas or products create the managerial incentive for mergers known as: A. horizontal integration. B. vertical integration. C. synergy. D. the portfolio effect. Question 6 of 20 5.0 Points Selling stockholders who are offered cash or another company's stock in a merger may be willing to part with the shares they hold because: A. the offered shares may be more marketable. B. the price they are offered for their shares may be above market value. C. they can attain a greater degree of diversification as a result. D. All of the above Question 7 of 20 5.0 Points Which of the following is not a form of compensation that selling stockholders could receive? A. Stock B. Cash C. Stock Options D. Fixed Income Securities Question 8 of 20 5.0 Points Which type of merger decreases competition? A. Horizontal merger B. Vertical merger C. Cash purchase D. Stock-for-stock exchange Question 9 of 20 5.0 Points The Prad Corporation is considering a merger with the Stone Company which has 400,000 outstanding shares selling for $25. An investment banker has advised that to succeed in its merger Prad Corporation would have to offer $45 per share for Stones's stock. Prad Corporation stock is selling for $30. How many shares of Prad Corp. stock would have to be exchanged to acquire all of Stones's stock? A. 266,667 B. 600,000 C. 720,000 D. 535,000 Question 10 of 20 5.0 Points Aardvark Software, Inc., can purchase all the stock of Zebra Computer Services for $1,000,000 in cash. Zebra is expected to generate net after-tax cash flows of $100,000 per year for each of the next ten years. Aardvark should: A. not purchase Zebra Computer Services. B. purchase Zebra Computer Services. C. purchase Zebra only if Aardvark's cost of capital is between 5% and 10%. D. purchase Zebra only if Aardvark's cost of capital is above 10%. Question 11 of 20 5.0 Points Dilution in earnings per share occurs when a company with: A. a high P/E ratio buys a company with a low P/E ratio. B. a low P/E ratio buys a company with a high P/E ratio. C. a high growth rate in earnings per share buys a company with a low growth rate in earnings per share. D. a low growth rate in earnings per share buys a company with a high growth rate in earnings per share. Question 12 of 20 5.0 Points In the event that Active Corp., which has a low P/E ratio, acquires Basic Corp., which has a higher P/E ratio, which of the following could we be assured would occur? A. Active Corp. will have an immediate increase in E.P.S. B. Active Corp. will have an immediate decrease in E.P.S. C. Active Corp. will have an immediate increase in the growth rate of E.P.S. D. Active Corp. will have an immediate decrease in P/E. Question 13 of 20 5.0 Points The portfolio effect in a merger has to do with: A. increasing EPS. B. reducing risk. C. creating tax advantages. D. writing off goodwill. Question 14 of 20 5.0 Points White Knights: A. advise companies on ways to avoid being taken over. B. offer a higher purchase price and more friendly offer in the event of an unsolicited and unfriendly takeover attempt. C. attempt to make money in the stock market on stocks that are likely merger candidates. D. buy depressed stock of quality companies when merger talks are discontinued. Question 15 of 20 5.0 Points Which of the following is a tender offer that utilizes borrowed funds and the acquired firm's assets as collateral? A. Unfriendly takeover B. Divestiture C. Two-step buyout D. Leveraged takeover Question 16 of 20 5.0 Points The price that a company has to pay to purchase another firm is: A. the book value. B. the market value. C. some premium over current market value. D. some discount of current market value. Question 17 of 20 5.0 Points The typical merger premium is: A. 0-20%. B. 40%. C. 40-60%. D. 60-80%. Question 18 of 20 5.0 Points The two step buyout is a recent merger ploy that has which of the following characteristics? A. It is negotiated in a social, rather than a business, setting. B. The acquiring firm offers to pay a very high price for the target company's stock, and a short time later announces another price which may be higher or lower. C. The acquiring firm offers to pay a very high price for the target company's stock for a limited time only, after which it will pay a considerably lower price. D. It forces stockholders to sell out. Question 19 of 20 5.0 Points Under a two step buyout procedure: A. shareholders receive a higher total price than if a single offer is made. B. the second offer is at a higher price per share. C. shareholders are encouraged to react quickly to the offer. D. All of the above Question 20 of 20 5.0 Points In regard to two step buyouts: A. the SEC highly approves of them. B. the FTC highly approves of them. C. the SEC is keeping a close eye on them. D. the FTC is keeping a close eye on them.  |
