Question 1

An acquisition completed simply to diversify a firm will:

Accepted Answer

A)  create excessive synergy in almost all situations.
B)  lower systematic risk and increase the value of the firm.
C)  benefit the firm by eliminating unsystematic risk.
D)  benefit the shareholders by providing otherwise unobtainable diversification.
E)  generally not add any value to the firm.F) A) and B)
G) A) and E)

Question 2

Aardvark Enterprises has agreed to be acquired by Lawson Products in exchange for $30,000 worth of Lawson Products stock.Lawson has 3,000 shares of stock outstanding at a price of $28 a share.Aardvark has 1,100 shares outstanding with a market value of $23 a share.The incremental value of the acquisition is $1,400.What is the value of Lawson Products after the merger?

Accepted Answer

A)  $79,400
B)  $83,000
C)  $111,600
D)  $110,700
E)  $143,000F) B) and D)
G) B) and C)

Question 3

Silver Enterprises has acquired All Gold Mining in a merger transaction.The following balance sheets represent the premerger book values for both firms.   Silver Enterprises  Current assets $5,900 Current liabilities $4,100 Other assets 2,600 Long-term debt 2,000 Net fixed assets $$,900 Equity 11,300‾ Total $17,400‾ Total $17,400‾\begin{array}{lrlr} & {	ext { Silver Enterprises }} \	ext { Current assets } & \$ 5,900 & 	ext { Current liabilities } & \$ 4,100 \	ext { Other assets } & 2,600 & 	ext { Long-term debt } & 2,000 \	ext { Net fixed assets } & \$ \$, 900 & 	ext { Equity } & \underline{11,300} \	ext { Total } & \underline{\$ 17,400} & 	ext { Total } & \underline{\$ 17,400}\end{array} Current assets  Other assets  Net fixed assets  Total ​ Silver Enterprises $5,9002,600$$,900$17,400​​ Current liabilities  Long-term debt  Equity  Total ​$4,1002,00011,300​$17,400​​

Assume the merger is treated as a pooling of interests for accounting purposes.The total assets are _____ and the total equity is _____ on the post-merger balance sheet.

Accepted Answer

A)  $24,500; $10,500
B)  $24,500; $18,200
C)  $26,300; $10,500
D)  $26,300; $16,600
E)  $27,500; $19,400 F) A) and B)
G) A) and D)

Question 4

Consider the following premerger information about Firm X and Firm Y:  Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $3 per share.Also assume that neither firm has any debt before or after the merger.What is the value of the total equity of the combined firm,XY,if the purchase method of accounting is used?

Accepted Answer

A)  $1,274,000
B)  $1,316,000
C)  $1,352,000
D)  $1,422,000
E)  $1,427,000F) C) and D)
G) B) and D)

Question 5

Empirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm.Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.

Accepted Answer

The empirical evidence strongly indicate...

Question 6

Firm A is being acquired by Firm B for $54,000 worth of Firm B stock.The incremental value of the acquisition is $5,600.Firm A has 2,400 shares of stock outstanding at a price of $19 a share.Firm B has 2,700 shares of stock outstanding at a price of $50 a share.What is the actual cost of the acquisition using company stock?

Accepted Answer

A)  $50,509
B)  $52,276
C)  $53,200
D)  $56,780
E)  $60,600F) A) and B)
G) A) and C)

Question 7

Some Freight Line Express shareholders are very dissatisfied with the performance of the firm's current management team.These shareholders want to gain control of the board of directors so they can have the power to oust current management.As a means of gaining control,these shareholders have select candidates for all of the open positions on the firm's board of directors.Since they have insufficient votes to guarantee the election of these individuals,they are contacting other shareholders and asking them to vote with them on this important matter.Of course,the current management team is encouraging shareholders to vote for their candidates for the board.Which one of the following terms is best illustrated by this situation?

Accepted Answer

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

Question 8

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

Question 9

Which one of the following defensive tactics is designed to prevent a "two-tier" takeover offer?

Accepted Answer

A)  bear hug
B)  poison put
C)  shark repellent
D)  dual class capitalization
E)  fair price provisionF) A) and B)
G) A) and C)

Question 10

Which of the following are reasons why a firm may want to divest itself of some of its assets?
I.to raise cash
II.to unload unprofitable operations
III.to improve the strategic fit of a firm's various divisions
IV.to comply with antitrust regulations

Accepted Answer

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

Question 11

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 12

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 D)
G) None of the above

Question 13

Rosie's has 1,800 shares outstanding at a market price per share of $23.50.Sandy's has 2,500 shares outstanding at a market price of $21 a share.Neither firm has any debt.Sandy's is acquiring Rosie's.The incremental value of the acquisition is $1,200.What is the value of Rosie's to Sandy's?

Accepted Answer

A)  $41,100
B)  $41,900
C)  $42,300
D)  $42,700
E)  $43,500F) A) and B)
G) A) and C)

Question 14

If Paul's Hardware were to acquire Suburban Hardware,the acquisition would be classified as a _____ acquisition.

Accepted Answer

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

Question 15

If General Electric,a highly diversified company,were to acquire Ocean Freight Limited,the acquisition would be classified as a _____ acquisition.

Accepted Answer

A)  horizontal
B)  longitudinal
C)  conglomerate
D)  vertical
E)  integratedF) A) and E)
G) None of the above

Question 16

If an acquisition does not create value and the market is smart,then the:

Accepted Answer

A)  earnings per share of the acquiring firm must be the same both before and after the acquisition.
B)  earnings per share can change but the stock price of the acquiring firm should remain constant.
C)  price per share of the acquiring firm should increase because of the growth of the firm.
D)  earnings per share will most likely increase while the price-earnings ratio remains constant.
E)  price-earnings ratio should remain constant regardless of any changes in the earnings per share.F) B) and E)
G) A) and B)

Question 17

George's Equipment is planning on merging with Nelson Machinery.George's will pay Nelson's shareholders the current value of their stock in shares of George's Equipment.George's currently has 4,600 shares of stock outstanding at a market price of $31 a share.Nelson's has 1,600 shares outstanding at a price of $38 a share.What is the value per share of the merged firm?

Accepted Answer

A)  $30.77
B)  $31.00
C)  $31.29
D)  $31.74
E)  $32.06F) D) and E)
G) All of the above

Question 18

Nelson's Interiors has $1.52 million in net working capital.The firm has fixed assets with a book value of $23.23 million and a market value of $26.16 million.The firm has no long-term debt.The Home Centre is buying Nelson's Interiors for $29.5 million in cash.The acquisition will be recorded using the purchase accounting method.What is the amount of goodwill that The Home Centre will record on its balance sheet as a result of this acquisition?

Accepted Answer

A)  $1.82 million
B)  $3.34 million
C)  $3.88 million
D)  $4.14 million
E)  $6.27 millionF) A) and D)
G) A) and C)

Question 19

Sue's Bakery is planning on merging with Ted's Deli.Sue's will pay Ted's shareholders the current value of their stock in shares of Sue's Bakery.Sue's currently has 4,500 shares of stock outstanding at a market price of $19 a share.Ted's has 2,300 shares outstanding at a price of $20 a share.What is the value of the merged firm?

Accepted Answer

A)  $106,500
B)  $107,800
C)  $125,400
D)  $131,500
E)  $131,600F) D) and E)
G) A) and C)

Question 20

Moore Industries has agreed to be acquired by Scott Enterprises for $22,000 worth of Scott Enterprises stock.Scott Enterprises currently has 7,500 shares of stock outstanding at a price of $28 a share.Moore Industries has 1,800 shares outstanding at a price of $12 a share.The incremental value of the acquisition is $1,100.What is the value per share of Scott Enterprises stock after the acquisition?

Accepted Answer

A)  $27.52
B)  $27.96
C)  $28.08
D)  $28.47
E)  $31.03F) A) and B)
G) C) and D)

Exam 26: Mergers and Acquisitions

Correct Answer
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Correct Answer
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Correct Answer
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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

Rosie's has 1,800 shares outstanding at a market price per share of $23.50.Sandy's has 2,500 shares outstanding at a market price of $21 a share.Neither firm has any debt.Sandy's is acquiring Rosie's.The incremental value of the acquisition is $1,200.What is the value of Rosie's to Sandy's?

Correct Answer
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Correct Answer
verified

Correct Answer
verified

If General Electric,a highly diversified company,were to acquire Ocean Freight Limited,the acquisition would be classified as a _____ acquisition.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If an acquisition does not create value and the market is smart,then the:

Correct Answer
verified

If Paul's Hardware were to acquire Suburban Hardware,the acquisition would be classified as a _____ acquisition.

Correct Answer
verified

Which one of the following defensive tactics is designed to prevent a "two-tier" takeover offer?

Correct Answer
verified

The purchase accounting method requires that:

Correct Answer
verified

An acquisition completed simply to diversify a firm will:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Empirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm.Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.

Correct Answer
verified
The empirical evidence strongly indicate...
View Answer

Which of the following are reasons why a firm may want to divest itself of some of its assets? I.to raise cash II.to unload unprofitable operations III.to improve the strategic fit of a firm's various divisions IV.to comply with antitrust regulations

Correct Answer
verified

Exam 26: Mergers and Acquisitions

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Rosie's has 1,800 shares outstanding at a market price per share of $23.50.Sandy's has 2,500 shares outstanding at a market price of $21 a share.Neither firm has any debt.Sandy's is acquiring Rosie's.The incremental value of the acquisition is $1,200.What is the value of Rosie's to Sandy's?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If General Electric,a highly diversified company,were to acquire Ocean Freight Limited,the acquisition would be classified as a _____ acquisition.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If an acquisition does not create value and the market is smart,then the:

Correct AnswerverifiedShow Answer

If Paul's Hardware were to acquire Suburban Hardware,the acquisition would be classified as a _____ acquisition.

Correct AnswerverifiedShow Answer

Which one of the following defensive tactics is designed to prevent a "two-tier" takeover offer?

Correct AnswerverifiedShow Answer

The purchase accounting method requires that:

Correct AnswerverifiedShow Answer

An acquisition completed simply to diversify a firm will:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Empirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm.Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.

Correct AnswerverifiedThe empirical evidence strongly indicate...View AnswerShow Answer

Which of the following are reasons why a firm may want to divest itself of some of its assets? I.to raise cash II.to unload unprofitable operations III.to improve the strategic fit of a firm's various divisions IV.to comply with antitrust regulations

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Student examples will vary but should di...
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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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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Correct Answer
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The empirical evidence strongly indicate...
View Answer

Correct Answer
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