Podcast
Questions and Answers
In a merger or acquisition, a firm should be acquired if:
In a merger or acquisition, a firm should be acquired if:
One company wishes to acquire another. Which of the following forms of acquisition does not
require a formal vote by the shareholders of the acquired firm?
One company wishes to acquire another. Which of the following forms of acquisition does not require a formal vote by the shareholders of the acquired firm?
Firm A and Firm B merge to form firm AB. This is an example of:
Firm A and Firm B merge to form firm AB. This is an example of:
When evaluating an acquisition, you should:
When evaluating an acquisition, you should:
Signup and view all the answers
Which of the following is not true of mergers?
Which of the following is not true of mergers?
Signup and view all the answers
The complete absorption of one firm by another is called a:
The complete absorption of one firm by another is called a:
Signup and view all the answers
The positive incremental net gain associated with the combination of two firms through a merger or
acquisition is called:
The positive incremental net gain associated with the combination of two firms through a merger or acquisition is called:
Signup and view all the answers
Suppose that Verizon and Sprint were to merge. Ignoring potential antitrust problems, this merger
would be classified as a:
Suppose that Verizon and Sprint were to merge. Ignoring potential antitrust problems, this merger would be classified as a:
Signup and view all the answers
Suppose that General Motors has made an offer to acquire General Mills. Ignoring potential antitrust
problems, this merger would be classified as a:
Suppose that General Motors has made an offer to acquire General Mills. Ignoring potential antitrust problems, this merger would be classified as a:
Signup and view all the answers
If the All-Star Fuel Filling Company, a chain of gasoline stations, acquires the Mid-States Refining
Company, a refiner of oil products, this would be an example of a:
If the All-Star Fuel Filling Company, a chain of gasoline stations, acquires the Mid-States Refining Company, a refiner of oil products, this would be an example of a:
Signup and view all the answers
Which of the following is not true of acquisition of stock or tender offers?
Which of the following is not true of acquisition of stock or tender offers?
Signup and view all the answers
If the acquiring firm and acquired firm are not related to each other, then the acquisition is known as
a(an):
If the acquiring firm and acquired firm are not related to each other, then the acquisition is known as a(an):
Signup and view all the answers
Following an acquisition, the acquiring firm's statement of financial position shows an asset labeled
"goodwill." What form of merger accounting is being used?
Following an acquisition, the acquiring firm's statement of financial position shows an asset labeled "goodwill." What form of merger accounting is being used?
Signup and view all the answers
Turner, Inc. has $4.2 million in net working capital. The firm has fixed assets with a book value of
$48.6 million and a market value of $53.4 million. Martin & Sons are buying Turner, Inc. for $60
million in cash. The acquisition will be recorded using the purchase accounting method. What is the
amount of goodwill that Martin & Sons will record on its balance sheet as a result of this acquisition?
Turner, Inc. has $4.2 million in net working capital. The firm has fixed assets with a book value of $48.6 million and a market value of $53.4 million. Martin & Sons are buying Turner, Inc. for $60 million in cash. The acquisition will be recorded using the purchase accounting method. What is the amount of goodwill that Martin & Sons will record on its balance sheet as a result of this acquisition?
Signup and view all the answers
Synergy occurs when the:
Synergy occurs when the:
Signup and view all the answers
If Microsoft were to acquire Air Canada, the acquisition would be classified as a _____ acquisition.
If Microsoft were to acquire Air Canada, the acquisition would be classified as a _____ acquisition.
Signup and view all the answers
The synergy of an acquisition between Firm A and Firm B can be determined by:
The synergy of an acquisition between Firm A and Firm B can be determined by:
Signup and view all the answers
The value of synergy is estimated by the equation:
The value of synergy is estimated by the equation:
Signup and view all the answers
An important reason for acquisitions is that the combined firm may generate greater revenue than
the two separate firms could. Examples of revenue enhancement would not include:
An important reason for acquisitions is that the combined firm may generate greater revenue than the two separate firms could. Examples of revenue enhancement would not include:
Signup and view all the answers
An acquisition may take place because of a real or perceived strategic advantage. An example of a
strategic advantage would be:
An acquisition may take place because of a real or perceived strategic advantage. An example of a strategic advantage would be:
Signup and view all the answers
Which of the following is not true regarding monopoly power as it relates to acquisitions that reduce
competition?
Which of the following is not true regarding monopoly power as it relates to acquisitions that reduce competition?
Signup and view all the answers
A merger that improves the use of one company's design team and the other company's testing
group is evidence of:
A merger that improves the use of one company's design team and the other company's testing group is evidence of:
Signup and view all the answers
The market for corporate control is a phrase that would not describe:
The market for corporate control is a phrase that would not describe:
Signup and view all the answers
The Albatross Co. has accumulated net operating losses of $70 million and is likely to enter
bankruptcy. The Zephyr Co. has earnings of $200 million and is in the 36% marginal tax bracket.
Zephyr is considering buying Albatross and liquidating the company and retaining a few of the
assets. What is the minimum value of Albatross to Zephyr?
The Albatross Co. has accumulated net operating losses of $70 million and is likely to enter bankruptcy. The Zephyr Co. has earnings of $200 million and is in the 36% marginal tax bracket. Zephyr is considering buying Albatross and liquidating the company and retaining a few of the assets. What is the minimum value of Albatross to Zephyr?
Signup and view all the answers
Cowboy Curtiss' Cowboy Hat Company recently completed a merger. When valuing the combined
firm after the merger, which of the following is an example of the type of common mistake that can
occur?
Cowboy Curtiss' Cowboy Hat Company recently completed a merger. When valuing the combined firm after the merger, which of the following is an example of the type of common mistake that can occur?
Signup and view all the answers
Firm A is going to acquire Firm B by selling bonds and using the proceeds to purchase (for cash) the
stock of Firm B. What is the appropriate discount rate for use in valuing the benefits of the merger?
Firm A is going to acquire Firm B by selling bonds and using the proceeds to purchase (for cash) the stock of Firm B. What is the appropriate discount rate for use in valuing the benefits of the merger?
Signup and view all the answers
When two firms merge and there is no synergy gain but the only change is a reduction in risk:
When two firms merge and there is no synergy gain but the only change is a reduction in risk:
Signup and view all the answers
If two leveraged firms merge, the cost of debt for the new firm will generally be lower than it was for
the two firms as separate entities. One reason for this is:
If two leveraged firms merge, the cost of debt for the new firm will generally be lower than it was for the two firms as separate entities. One reason for this is:
Signup and view all the answers
What is the synergy from the merger of V and A? V was worth $450 and A had a market value of
$375. V acquired A for $425 because they thought the combination of VA was worth $925.
What is the synergy from the merger of V and A? V was worth $450 and A had a market value of $375. V acquired A for $425 because they thought the combination of VA was worth $925.
Signup and view all the answers
What is the NPV from the merger of V and A? V was worth $450 and A had a market value of $375.
V acquired A for $425 because they thought the combination of VA was worth $925.
What is the NPV from the merger of V and A? V was worth $450 and A had a market value of $375. V acquired A for $425 because they thought the combination of VA was worth $925.
Signup and view all the answers
What is the cost of acquiring A if the V and A merge? V is worth $450 and has 100 shares
outstanding. A has a market value of $375 and has 40 shares outstanding. V to acquire A will swap
80 shares of V for the 40 shares of A. V believes the combination of VA was worth $925.
What is the cost of acquiring A if the V and A merge? V is worth $450 and has 100 shares outstanding. A has a market value of $375 and has 40 shares outstanding. V to acquire A will swap 80 shares of V for the 40 shares of A. V believes the combination of VA was worth $925.
Signup and view all the answers
What is the market value exchange ratio of V acquiring A in a merger? V is worth $450 and has 100
shares outstanding. A has a market value of $375 and has 40 shares outstanding. V to acquire A
will swap 80 shares of V for the 40 shares of A. V believes the combination of VA was worth $925.
What is the market value exchange ratio of V acquiring A in a merger? V is worth $450 and has 100 shares outstanding. A has a market value of $375 and has 40 shares outstanding. V to acquire A will swap 80 shares of V for the 40 shares of A. V believes the combination of VA was worth $925.
Signup and view all the answers
In a merger with an exchange of stock, when the premerger prices are used to calculate the
exchange ratio, the true cost of the merger:
In a merger with an exchange of stock, when the premerger prices are used to calculate the exchange ratio, the true cost of the merger:
Signup and view all the answers
Rudy's, Inc. and Blackstone, Inc. are all-equity firms. Rudy's has 1,500 shares outstanding at a market
price of $22 a share. Blackstone has 2,500 shares outstanding at $38 a share. Blackstone is
acquiring Rudy's for $36,000 in cash. What is the merger premium per share?
Rudy's, Inc. and Blackstone, Inc. are all-equity firms. Rudy's has 1,500 shares outstanding at a market price of $22 a share. Blackstone has 2,500 shares outstanding at $38 a share. Blackstone is acquiring Rudy's for $36,000 in cash. What is the merger premium per share?
Signup and view all the answers
Firm A is acquiring Firm B for $25,000 in cash. Firm A has 2,000 shares of stock outstanding at a
market value of $21 a share. Firm B has 1,200 shares of stock outstanding at a market price of $17 a
share. Neither firm has any debt. The net present value of the acquisition is $1,500. What is the price
per share of Firm A after the acquisition?
Firm A is acquiring Firm B for $25,000 in cash. Firm A has 2,000 shares of stock outstanding at a market value of $21 a share. Firm B has 1,200 shares of stock outstanding at a market price of $17 a share. Neither firm has any debt. The net present value of the acquisition is $1,500. What is the price per share of Firm A after the acquisition?
Signup and view all the answers
Principal, Inc. is acquiring Secondary Companies for $29,000 in cash. Principal has 2,500 shares of
stock outstanding at a market price of $30 a share. Secondary has 1,600 shares of stock
outstanding at a market price of $15 a share. Neither firm has any debt. The net present value of the
acquisition is $4,500. What is the price per share of Principal after the acquisition?
Principal, Inc. is acquiring Secondary Companies for $29,000 in cash. Principal has 2,500 shares of stock outstanding at a market price of $30 a share. Secondary has 1,600 shares of stock outstanding at a market price of $15 a share. Neither firm has any debt. The net present value of the acquisition is $4,500. What is the price per share of Principal after the acquisition?
Signup and view all the answers
Firm A does well in a boom economy. Firm B does well in a bust economy.
Firm A does well in a boom economy. Firm B does well in a bust economy.
Signup and view all the answers
A merger should not take place simply for:
A merger should not take place simply for:
Signup and view all the answers
A modification to the corporate charter that requires 80% shareholder approval for a takeover is
called a(n):
A modification to the corporate charter that requires 80% shareholder approval for a takeover is called a(n):
Signup and view all the answers
Which of the following is the opposite of a targeted repurchase?
Which of the following is the opposite of a targeted repurchase?
Signup and view all the answers
When the management and/or a small group of investors takeover a firm and the shares of the firm
are delisted and no longer publicly available, this action is known as:
When the management and/or a small group of investors takeover a firm and the shares of the firm are delisted and no longer publicly available, this action is known as:
Signup and view all the answers
Which of the following defensive tactics eliminates the possibility of a takeover via tender offer?
Which of the following defensive tactics eliminates the possibility of a takeover via tender offer?
Signup and view all the answers
Compensation paid to top management in the event of a takeover is called a:
Compensation paid to top management in the event of a takeover is called a:
Signup and view all the answers
