10 Questions
Which stakeholder group is most likely to benefit from a merger if the acquiring company is focused on realizing cost synergies?
Creditors
A company's operating cycle lengthens as a result of extending its credit terms. Which stakeholder group is most likely to benefit from this change?
Customers
Which ESG implementation approach is most likely to be used by an investor who seeks to invest in companies that provide environmental benefits?
Positive screening
Which stakeholder group is most likely to benefit from a company's undervalued stock price?
Shareholders
A company's stock price increases significantly after the announcement of a new product launch. Which stakeholder group is most likely to benefit from this increase?
Shareholders
Which ESG implementation approach is most likely to be used by an investor who seeks to exclude all companies that do not meet specific ESG criteria?
Negative screening
A company's financial leverage increases significantly after the issuance of new debt. Which stakeholder group is most likely to benefit from this increase?
Creditors
Which stakeholder group is most likely to benefit from a company's decision to extend its credit terms to customers?
Customers
A company's board of directors is most likely to be concerned about the interests of which stakeholder group?
Shareholders
Which ESG implementation approach is most likely to be used by an investor who seeks to invest in companies that provide specific social benefits?
Thematic investing
Study Notes
Investors and Other Stakeholders
Mergers and Acquisitions
- A competitor offering to acquire a company at 20% above its publicly traded price to increase the target company's value through cost synergies may be opposed by non-owner managers and non-executive directors.
- Shareholders may have a reason to support the merger.
Financial Leverage
- Creditors can benefit from increased financial leverage as they receive interest payments.
- Shareholders may also benefit from increased financial leverage through increased earnings.
Operating Cycle
- Extending credit terms from 30 to 90 days can cause concern for creditors, but not for customers.
- Suppliers may also be affected by the extended credit terms.
Environmental, Social, and Governance (ESG) Implementation
- Thematic investing involves investing only in a specific sector or industry, such as alternative energy.
- Exclusionary screening involves excluding companies that do not meet certain ESG criteria, such as energy and mining companies.
- Negative screening is an ESG implementation approach that excludes companies based on personal beliefs.
Stakeholder Benefits
- Creditors are least likely to benefit from a significant rise in market value of a public corporation.
- Shareholders, senior executives, and the board of directors may benefit from a significant rise in market value.
Company Valuation
- A company with significant debt, moderate revenue growth, and steady positive cash flow may have its stock price consistently undervalued by the market.
- This scenario is most advantageous for creditors.
Full Integration
- Full integration in ESG investing involves incorporating ESG factors into the investment process and ownership practices.
This quiz covers the concepts of mergers and acquisitions, including stakeholders involved and their interests. It assesses your understanding of how different stakeholders are affected by M&A deals.
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