Question 1

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 E)
G) None of the above

Question 2

Outdoor Living has agreed to be acquired by New Adventures for $48,000 worth of New Adventures stock.New Adventures currently has 8,000 shares of stock outstanding at a price of $32 a share.Outdoor Living has 1,700 shares outstanding at a price of $43 a share.The incremental value of the acquisition is $21,000.What is the value of the merged firm?

Accepted Answer

A)  $85,500
B)  $256,000
C)  $277,000
D)  $320,500
E)  $350,100F) A) and C)
G) All of the above

Question 3

Merchantile Exchange is being acquired by National Sales.The incremental value of the acquisition is $1,800.Merchantile Exchange has 1,500 shares of stock outstanding at a price of $18 a share.National Sales has 3,500 shares of stock outstanding at a price of $54 a share.What is the net present value of the acquisition given that the actual cost of the acquisition using company stock is $28,780?

Accepted Answer

A)  $8
B)  $11
C)  $20
D)  $37
E)  $46F) A) and B)
G) A) and C)

Question 4

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) B) and D)
G) B) and C)

Question 5

Firm B is being acquired by Firm A for $162,000 worth of Firm A stock.The incremental value of the acquisition is $4,600.Firm A has 8,500 shares of stock outstanding at a price of $36 a share.Firm B has 5,900 shares of stock outstanding at a price of $27 a share.What is the value per share of Firm A after the acquisition?

Accepted Answer

A)  $35.28
B)  $35.71
C)  $36.00
D)  $36.15
E)  $37.04F) B) and E)
G) A) and B)

Question 6

Alpha is planning on merging with Beta.Alpha will pay Beta's shareholders the current value of their stock in shares of Alpha.Alpha currently has 4,200 shares of stock outstanding at a market price of $40 a share.Beta has 2,500 shares outstanding at a price of $18 a share.The after-merger earnings will be $8,800.What will the earnings per share be after the merger?

Accepted Answer

A)  $1.61
B)  $1.65
C)  $1.75
D)  $1.81
E)  $1.86F) A) and B)
G) A) and C)

Question 7

Dressler,Inc.,is planning on merging with Weston Foods.Dressler will pay Weston's shareholders the current value of its stock in shares of Dressler stock.Dressler's currently has 6,200 shares of stock outstanding at a market price of $30 a share.Weston's has 2,200 shares outstanding at a price of $25 a share.How many shares of stock will be outstanding in the merged firm?

Accepted Answer

A)  6,840 shares
B)  7,061 shares
C)  7,200 shares
D)  8,033 shares
E)  8,609 sharesF) A) and B)
G) A) and C)

Question 8

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) B) and D)
G) A) and B)

Question 9

Penn Corp.is analyzing the possible acquisition of Teller Company.Both firms have no debt.Penn believes the acquisition will increase its total aftertax annual cash flows by $3.7 million indefinitely.The current market value of Teller is $103 million,and that of Penn is $151.7 million.The appropriate discount rate for the incremental cash flows is 9 percent.Penn is trying to decide whether it should offer 40 percent of its stock of $127 million in cash to Teller's shareholders.The cost of the cash alternative is _____,while the cost of the stock alternative is _____.

Accepted Answer

A)  $103,000,000; $118,324,444
B)  $103,000,000; $127,000,000
C)  $127,000,000; $103,000,000
D)  $127,000,000; $118,324,444
E)  $236,000,000; $103,000,000F) D) and E)
G) C) and E)

Question 10

Which of the following increase the costs associated with a merger?

Accepted Answer

A)  changing the title to all the combined firm's assets
B)  disbanding the operations of the target firm
C)  hiring an underwriter to distribute the IPO shares
D)  issue costs associated with warrants that must be offered to the shareholders of the acquiring firm
E)  seeking approval of the shareholders of both the acquiring and the acquired firmF) D) and E)
G) A) and B) E

Question 11

Which one of the following statements is correct?

Accepted Answer

A)  Firms with large net operating losses tend to be acquiring firms rather than target firms.
B)  The leverage associated with an acquisition increases the tax liability of the acquiring firm.
C)  If either an increase or a decrease in the level of production causes the average cost per unit to increase then the firm is currently operating at its optimal production level.
D)  Firms can always benefit from economies of scale if they increase the size of their firm through acquisitions.
E)  If a firm uses it surplus cash to acquire another firm then the shareholders of the acquiring firm immediately incur a tax liability related to the transaction.F) A) and B)
G) C) and D)

Question 12

The primary purpose of a flip-in provision is to:

Accepted Answer

A)  increase the number of shares outstanding while also increasing the value per share.
B)  dilute a corporate raider's ownership position.
C)  reduce the market value of each share of stock.
D)  give the existing corporate directors the sole right to remove a poison pill.
E)  provide additional compensation to any senior manager who loses his or her job as a result of a corporate takeover.F) B) and E)
G) A) and B)

Question 13

For financial statement purposes,goodwill created by an acquisition:

Accepted Answer

A)  must be amortized on a straight-line basis over 10 years.
B)  must be reviewed each year and amortized to the extent that it has lost value.
C)  is expensed evenly over a 20-year period.
D)  never affects the profits of the acquiring firm.
E)  is recorded in an amount equal to the fair market value of the assets of the target firm.F) D) and E)
G) B) and E) B

Question 14

Glendale Marine is being acquired by Inland Motors for $53,000 worth of Inland Motors stock.Inland Motors has 6,200 shares of stock outstanding at a price of $49 a share.Glendale Marine has 1,700 shares outstanding with a market value of $30 a share.The incremental value of the acquisition is $2,600.What is the total number of shares in the new firm?

Accepted Answer

A)  7,229 shares
B)  7,282 shares
C)  7,529 shares
D)  7,852 shares
E)  7,900 sharesF) None of the above
G) A) and B) B

Question 15

The current president and vice-presidents of Mountain Top Consulting have decided to form a private investment group with the sole purpose of purchasing Mountain Top Consulting.These individuals have found a lender who will lend them 85 percent of the purchase cost if they pledge their personal assets as collateral for the loan.The current officers agree to this arrangement,borrow the funds,and purchase Mountain Top Consulting.The purchase of this firm is referred to as a:

Accepted Answer

A)  conglomeration.
B)  proxy contest.
C)  merger.
D)  leveraged buyout.
E)  consolidation.F) B) and E)
G) None of the above

Question 16

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) D) and E)
G) B) and E)

Question 17

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) A) and D)
G) A) and B)

Question 18

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 E)
G) C) and E)

Question 19

Which one of the following statements is correct?

Accepted Answer

A)  A spin-off frequently follows an equity carve-out.
B)  A split-up frequently follows a spin-off.
C)  An equity carve-out is a specific type of acquisition.
D)  A spin-off involves an initial public offering.
E)  A divestiture means that the original firm ceases to exist.F) A) and C)
G) C) and E)

Question 20

Princeton Enterprises is a diversified company.In addition to its primary business operations,the firm is also the sole shareholder of a wholly owned subsidiary.As part of its restructuring plan,Princeton has decided to implement an IPO offering for shares in the subsidiary.This offering is equivalent to a 25 percent ownership stake in the subsidiary.What is the distribution of these shares called?

Accepted Answer

A)  split-up
B)  equity carve-out
C)  countertender offer
D)  white knight transaction
E)  lockup transactionF) None of the above
G) A) and E)

Exam 26: Mergers and Acquisitions

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

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Which of the following increase the costs associated with a merger?

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E

Which one of the following statements is correct?

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The primary purpose of a flip-in provision is to:

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For financial statement purposes,goodwill created by an acquisition:

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B

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B

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

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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:

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Which one of the following statements is correct?

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Which one of the following statements is correct?

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Exam 26: Mergers and Acquisitions

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

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Which of the following increase the costs associated with a merger?

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Which one of the following statements is correct?

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The primary purpose of a flip-in provision is to:

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For financial statement purposes,goodwill created by an acquisition:

Correct AnswerverifiedB

Correct AnswerverifiedB

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

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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:

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Which one of the following statements is correct?

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Which one of the following statements is correct?

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E

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B

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B

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