FIN/444 Mergers, Acquisition and Corporate Restructuring
1. The pooling of interest and the purchase method are the two methods allowed by the FASB in accounting for Mergers and Acquisitions.
A. True
B. False
2. FASB prefers the purchase method of accounting for business combinations because
CEOs of major corporations find it more beneficial
Purchase method allows for amortization of goodwill over a maximum of 40 years
Merger accounting and subsequent asset values should be consistent with market valuations
Purchase method is more easily understood by accountants
3. Strategic planning is the responsibility of the CEO and executive management team?
True
False
4. Which of the statements below is an essential element of the strategic planning process
Formulation of internal organizational performance measurements.
Formulation of mid-range programs and short-run plans.
Analysis of company, competitors, industry, domestic economy, and international economies.
A and C only
All of the above
5. Strategic planning processes can utilize formal procedures or develop through informal communications throughout the organization.
True
False
6. According to the study done by Jensen (1986) he found that
Firms with substantially high free cash flow leads to value-reducing diversification decisions
Mergers create cost saving synergies
Produce economies of scale
B and C only
7. According to studies done by Hirshleifer and Png (1989) and French and McCormick (1984) suggested that
a seller might want to limit the competitiveness of the selling process because it can indirectly affect the aggressiveness of any one bidder and adversely affect the combined net gains from the transaction.
A seller might want to promote the competitiveness of the selling process because it can indirectly affect the aggressiveness of any one bidder and help increase the combined net gains from the transaction
Bidders in a takeover attempt face a potential winners curse
None of the above
8. Between 1895 and 1904 what type of merger was most prevalent?
Vertical Mergers
Conglomerate Mergers
Horizontal Mergers
None of the above
9. Andrade, Mitchell, and Stafford (2001) concluded that much of the merger activity that transpired during the 90s was caused by
Technological Innovations
Availability of Junk Bonds
Capital Markets
Deregulation
10. Which characteristics will not make a firm vulnerable to a takeover :
A. A low stock price in relation to the replacement cost of assets or their potential earning power (a low q-ratio).
B. A highly liquid balance sheet with large amounts of excess cash, a valuable securities portfolio,and significant unused debt capacity.
Good cash flow relative to current stock prices; low P/EPS ratios.
Subsidiaries or properties that could be sold off that would significantly impair cash flow.
11. Which of the following are defenses against hostile takeover bids:
A. Classified Boards
B. White Knight
C. Super Majority Amendments
D. All of the above
E. B and C only
12. The leading methods used in the valuation of a firm for merger analysis are:
the comparable companies or comparable transactions approach
the spreadsheet approach
the formula approach
all of the above
A and B only
13. The Black-Scholes option pricing model should be used with which of the valuation techniques?
the spreadsheet approach
the comparable companies or comparable transactions approach
the MBA approach
A and B only
14. When calculating the WACC we should use which of the following?
Book value for both debt & equity
Market value for both debt & equity
Book value for debt & market value for equity
Market value for debt & book value for equity
15. Three major types of merger motivations were identified by Berkovitch and Narayanan (1993):
synergy
hubris
operating innovations
All of the above
A & B only
16. All are reasons for given for merger activity except
Technological change
Economies of scale
New industries
Super Majority amendments
Deregulation and regulation
17. Tender offers can be either hostile or friendly
True
False
18. All are types of mergers except
Horizontal
Vertical
Hubris
Conglomerate
19. Which federal securities law regulates the sale of securities
Securities Act of 1933 (SA)
Securities Exchange Act of 1934 (SEA)
Public Utility Holding Company Act of 1935 (PUHCA)
Investment Company Act of 1940 (ICA)
20. This act applies to public issues of debt securities with a value of $5 million or more.
Securities Act of 1933 (SA)
Securities Exchange Act of 1934 (SEA)
The Trust Indenture Act of 1939
Investment Company Act of 1940 (ICA)
21. Its stated purpose was to protect target shareholders from swift and secret takeovers
Securities Act of 1933 (SA)
Securities Exchange Act of 1934 (SEA)
The Trust Indenture Act of 1939
The Williams Act
22. A strategic alliance represents a combination of subsets of assets contributed by two (or more) business entities for a specific business purpose and a limited duration.
True
False
23. All of the following are rationales for joint ventures except
Tax Aspects
Knowledge Acquisition
Risk Reduction
Capital Markets
24. Strategic alliances are informal or formal decisions or agreements between two or more firms to cooperate in some form of relationship.
True
False
25. Defined contribution plans can be of three kinds: stock bonus plans, profit-sharing plans, and money purchase plans.
True
False
26. Under ERISA, ESOPs are stock bonus plans or combined stock bonus plans and money purchase plans designed to invest primarily in qualifying employer securities.
True
False
27. According to The U.S. General Accounting Office (GAO) (1986) all of the following are types of ESOPs except: leveraged,
leveragable
nonleveraged
stock
tax credit
28. ESOPs can be used as an antitakeover weapons
True
False
29. The master limited partnership (MLP) is a type of limited partnership whose shares are publicly traded.
True
False
30. The most widely used method for determining the cost of equity is
The Dividend Growth Model
The CAPM
The Bond Yield Plus Equity Risk model
None of the above
31. The risk free rate used in the CAPM is:
AAA rated corporate bond
U.S. 3 month Treasury Bill
U.S. 10 year Treasury Bond
Aaa rated corporate bond
32. Which of the following is a type of share repurchase?
Clientele effect
Signaling effect
Dutch auctions
None of the above
33. Which of the following is a form of restructuring and divestitures?
Asset Sales
Equity carve-outs
Spin-offs
A and C only
All of the above
34. A split-upis defined as the separation of a company into two or more parts.
True
False
35. In all of the listed research papers, corporate divestitures, on average, create wealth for parent shareholders.
True
False
36. In dual-class recapitalizations (DCRs), firms have created a second class of common stock that has limited voting rights and usually a preferential claim to the firms cash flows.
True
False
37. The main reason/reasons for the large levels of foreign M&A activity is:
Europe becoming a common market place
Globalization
International Competition
All of the above
38. U.S. company acquisitions of non-U.S. companies are in the range of ______% to ______% of total world M&A activity.
4% to 7%
11% to 15%
1% to 3%
None of the above
39. Growth is the most important motive for international mergers.
True
False
40. The fraud and self-dealing revelations of new millennium resulted in investigations by congress, the SEC, and the State Attorney General in several jurisdictions, particularly New York and led to the Sarbanes-Oxley Act (SOA).
True
False
41. A widely held view is that about 67% of acquisitions do not earn the buyers cost of capital.
True
False
42. Mergers fail for which of the following reason/reasons?
Pay too much
Overoptimistic expected synergies
Greenmail
All of the above
A and B only
43. The modern literature on long-range planning indicates that long-range strategic planning involves at least the following elements:
A. Environmental reassessment for new technologies, new industries, and new forms of competitors.
B. A consideration of capabilities, missions, and environmental interactions from the standpoint of the firm and its divisions.
C. An emphasis on process rather than particular goals or objectives.
D. An emphasis on iteration and on an iterative feedback process as a methodology for dealing with ill-structured problems.
E. All of the above