Question 1

Which of the following is the best deﬁnition of a stock exchange bid?

Accepted Answer

A)   Combinations of ﬁrms that have been joined by merger, consolidation, or acquisition.
B)   A public offer by one ﬁrm to directly buy the shares from another ﬁrm.
C)   The positive incremental net gain associated with the combination of two ﬁrms through a merger or acquisition.
D)   Agreement between ﬁrms to cooperate in pursuit of a joint goal.
E)   Corporate takeover bid communicated to the shareholders through a stock exchange.F) All of the above
G) B) and D)

Question 2

Which one of the following statements is correct?

Accepted Answer

A)   A ﬁrm must realize some synergy as a result of a merger if the earnings per share of the acquiring ﬁrm increase.
B)   Any diversiﬁcation achieved through a merger is valued by investors.
C)   Any increase in earnings per share due to a merger provides ﬁnancial reasoning for an increase in the stock price per share.
D)   Firms with surplus cash need to justify an acquisition as having a business purpose other than the avoidance of a dividend distribution.
E)   Diversiﬁcation is one of the greatest beneﬁts derived from an acquisition.F) None of the above
G) B) and E)

Question 3

Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000.  What is the true cost of the acquisition of ﬁrm B by ﬁrm A in an all-stock deal?

Accepted Answer

A)   $401,807
B)   $408,000
C)   $423,873
D)   $432,939
E)   $488,000F) B) and C)
G) A) and C)

Question 4

The primary difference between a merger and a consolidation is that the _____ ﬁrm continues to exist in a _____ but not in a _____.

Accepted Answer

A)   target; consolidation; merger
B)   target; merger; consolidation
C)   acquiring ﬁrm; consolidation; merger
D)   acquiring ﬁrm; merger; consolidation
E)   joint venture; consolidation; mergerF) A) and B)
G) B) and E)

Question 5

In an economic sense, goodwill created in an acquisition represents blue sky, that is, the acquiring
ﬁrm is essentially paying a premium for the purchase and getting nothing of value for this part of the
price.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following is most likely a good candidate for an acquisition that could beneﬁt from the use of complementary resources?

Accepted Answer

A)   A sports arena that is home only to an indoor hockey team
B)   A hotel in a busy downtown business district of a major city
C)   A day care center located near a major route into the main business district of a large city
D)   An amusement park located in a centralized Florida location
E)   A fast food restaurant located near a major transportation hubF) A) and B)
G) None of the above

Question 7

Better use of tax losses is a possible source of cash ﬂow beneﬁts derived from a merger.

Accepted Answer

A) True 
 B)False

Question 8

A tender offer must be approved by a vote of the shareholders of the target ﬁrm, while a merger
does not.

Accepted Answer

A) True 
 B)False

Question 9

Under the purchase accounting method of reporting acquisitions:

Accepted Answer

A)   The target ﬁrm's assets are recorded on the balance sheet of the acquiring ﬁrm at the same value at which they were last shown on the balance sheet of the target ﬁrm.
B)   Goodwill is recorded in an amount equal to the purchase price less the estimated fair market value of the net assets acquired.
C)   The assets, but not the liabilities, of the target ﬁrm are reported on the balance sheet of the acquiring ﬁrm.
D)   The balance sheet of the acquiring ﬁrm is increased by an amount equal to the estimated fair market value of the net assets acquired.
E)   The ﬁxed assets of both the target ﬁrm and the acquiring ﬁrm are restated at their estimated fair market value.F) A) and B)
G) A) and C)

Question 10

Provide a deﬁnition of a shareholder rights plan.

Accepted Answer

Provisions allowing existing s...

Question 11

Ingeneral, a leveraged buyout:

Accepted Answer

A)   Is limited to smaller, non-public ﬁrms.
B)   Is used to take a private ﬁrm public.
C)   Is used by current managers or ﬁnanciers to take a ﬁrm private.
D)   Involves the sale of equity securities to pay off outstanding debt.
E)   Signiﬁcantly lowers the leverage of the ﬁrm.F) All of the above
G) B) and C)

Question 12

Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000.  What is the value of ﬁrm AB if the merger is an all cash deal?

Accepted Answer

A)   $640,000
B)   $720,000
C)   $764,000
D)   $800,000
E)   $936,000F) B) and E)
G) A) and E)

Question 13

An agreement between ﬁrms to create a separate, co-owned entity established to pursue a joint goal is called a:

Accepted Answer

A)   Consolidation.
B)   Strategic alliance.
C)   Joint venture.
D)   Merged alliance.
E)   Takeover project.F) B) and D)
G) C) and E)

Question 14

The term white knight is part of the vocabulary associated with corporate takeovers. What is a white
knight and what service does it provide?

Accepted Answer

A white knight is a friendly ﬁrm that st...

Question 15

Unused debt capacity refers to synergistic gains due to tax beneﬁts in an acquisition?

Accepted Answer

A) True 
 B)False

Question 16

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 included as a current liability.
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) All of the above

Question 17

Both ﬁrms are 100% equity-ﬁnanced. Firm A can acquire ﬁrm B for $82,500 in the form of either cash or stock. The synergy value of the deal is $12,500.  What is the price per share of the post-merger ﬁrm following a cash acquisition?

Accepted Answer

A)   $25.38
B)   $25.50
C)   $25.62
D)   $25.76
E)   $27.30F) A) and B)
G) C) and D)

Question 18

The fair market value of the ﬁxed assets of Markco, Inc. is $8,500. Big-T paid $13,000 for Markco, Inc. with funds from a long-term debt offering. The purchase method
Of accounting is used.
What is the total amount of debt and equity on the books of Big-T after the merger?

Accepted Answer

A)   $17,300
B)   $21,800
C)   $25,800
D)   $30,300
E)   $36,800F) A) and E)
G) A) and D)

Question 19

Firm A is acquiring Firm B for $37,000 in cash. Firm A has 3,400 shares of stock outstanding at a market value of $15 a share. Firm B has 2,200 shares of stock outstanding at a market price of $37
A share. Neither ﬁrm has any debt. The net present value of the acquisition is $2,100. What is the
Price per share of Firm A's stock after the acquisition?

Accepted Answer

A)   $15.62
B)   $16.07
C)   $28.68
D)   $34.18
E)   $39.56F) A) and E)
G) A) and C)

Question 20

Synergistic beneﬁts can often be realized by merging with a ﬁrm that uses complementary
resources.

Accepted Answer

A) True 
 B)False

Exam 23: Enterprise Risk Management

Which one of the following is most likely a good candidate for an acquisition that could beneﬁt from the use of complementary resources?

Correct Answer
verified

Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000. What is the value of ﬁrm AB if the merger is an all cash deal?

Correct Answer
verified

Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000. What is the true cost of the acquisition of ﬁrm B by ﬁrm A in an all-stock deal?

Correct Answer
verified

The fair market value of the ﬁxed assets of Markco, Inc. is $8,500. Big-T paid $13,000 for Markco, Inc. with funds from a long-term debt offering. The purchase method Of accounting is used. What is the total amount of debt and equity on the books of Big-T after the merger?

Correct Answer
verified

Under the purchase accounting method of reporting acquisitions:

Correct Answer
verified

Provide a deﬁnition of a shareholder rights plan.

Correct Answer
verified
Provisions allowing existing s...
View Answer

Ingeneral, a leveraged buyout:

Correct Answer
verified

An agreement between ﬁrms to create a separate, co-owned entity established to pursue a joint goal is called a:

Correct Answer
verified

Correct Answer
verified

Both ﬁrms are 100% equity-ﬁnanced. Firm A can acquire ﬁrm B for $82,500 in the form of either cash or stock. The synergy value of the deal is $12,500. What is the price per share of the post-merger ﬁrm following a cash acquisition?

Correct Answer
verified

Unused debt capacity refers to synergistic gains due to tax beneﬁts in an acquisition?

Correct Answer
verified

In an economic sense, goodwill created in an acquisition represents blue sky, that is, the acquiring ﬁrm is essentially paying a premium for the purchase and getting nothing of value for this part of the price.

Correct Answer
verified

Which of the following is the best deﬁnition of a stock exchange bid?

Correct Answer
verified

The primary difference between a merger and a consolidation is that the ___ ﬁrm continues to exist in a _ but not in a ___.

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

The purchase accounting method requires that:

Correct Answer
verified

The term white knight is part of the vocabulary associated with corporate takeovers. What is a white knight and what service does it provide?

Correct Answer
verified
A white knight is a friendly ﬁrm that st...
View Answer

A tender offer must be approved by a vote of the shareholders of the target ﬁrm, while a merger does not.

Correct Answer
verified

Synergistic beneﬁts can often be realized by merging with a ﬁrm that uses complementary resources.

Correct Answer
verified

Better use of tax losses is a possible source of cash ﬂow beneﬁts derived from a merger.

Correct Answer
verified

Exam 23: Enterprise Risk Management

Which one of the following is most likely a good candidate for an acquisition that could beneﬁt from the use of complementary resources?

Correct AnswerverifiedShow Answer

Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000. What is the value of ﬁrm AB if the merger is an all cash deal?

Correct AnswerverifiedShow Answer

Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000. What is the true cost of the acquisition of ﬁrm B by ﬁrm A in an all-stock deal?

Correct AnswerverifiedShow Answer

The fair market value of the ﬁxed assets of Markco, Inc. is $8,500. Big-T paid $13,000 for Markco, Inc. with funds from a long-term debt offering. The purchase method Of accounting is used. What is the total amount of debt and equity on the books of Big-T after the merger?

Correct AnswerverifiedShow Answer

Under the purchase accounting method of reporting acquisitions:

Correct AnswerverifiedShow Answer

Provide a deﬁnition of a shareholder rights plan.

Correct AnswerverifiedProvisions allowing existing s...View AnswerShow Answer

Ingeneral, a leveraged buyout:

Correct AnswerverifiedShow Answer

An agreement between ﬁrms to create a separate, co-owned entity established to pursue a joint goal is called a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Both ﬁrms are 100% equity-ﬁnanced. Firm A can acquire ﬁrm B for $82,500 in the form of either cash or stock. The synergy value of the deal is $12,500. What is the price per share of the post-merger ﬁrm following a cash acquisition?

Correct AnswerverifiedShow Answer

Unused debt capacity refers to synergistic gains due to tax beneﬁts in an acquisition?

Correct AnswerverifiedShow Answer

In an economic sense, goodwill created in an acquisition represents blue sky, that is, the acquiring ﬁrm is essentially paying a premium for the purchase and getting nothing of value for this part of the price.

Correct AnswerverifiedShow Answer

Which of the following is the best deﬁnition of a stock exchange bid?

Correct AnswerverifiedShow Answer

The primary difference between a merger and a consolidation is that the _____ ﬁrm continues to exist in a _____ but not in a _____.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

The purchase accounting method requires that:

Correct AnswerverifiedShow Answer

The term white knight is part of the vocabulary associated with corporate takeovers. What is a white knight and what service does it provide?

Correct AnswerverifiedA white knight is a friendly ﬁrm that st...View AnswerShow Answer

A tender offer must be approved by a vote of the shareholders of the target ﬁrm, while a merger does not.

Correct AnswerverifiedShow Answer

Synergistic beneﬁts can often be realized by merging with a ﬁrm that uses complementary resources.

Correct AnswerverifiedShow Answer

Better use of tax losses is a possible source of cash ﬂow beneﬁts derived from a merger.

Correct AnswerverifiedShow Answer

Correct Answer
verified

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
verified
Provisions allowing existing s...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The primary difference between a merger and a consolidation is that the ___ ﬁrm continues to exist in a _ but not in a ___.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A white knight is a friendly ﬁrm that st...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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