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Banking Chapter 1 1 A merger of equals is a merger framework usually applied whenever the merger participants are comparable in size, competitive position, profitability, and market capitalization
Chapter 1: Introduction to Mergers, Acquisitions, and Other Restructuring Activities Examination Questions and Answers True/False: Answer True or False to the following questions: 1. A divestiture is the sale of all or substantially all of a company or product line […]
Banking Chapter 1 2 How might the additional product and geographic diversity achieved by combining Mars and Wrigley benefit the combined firms
In 2008, Hewlett-Packard (HP) paid $13.9 billion for computer services behemoth, EDS, in an attempt to become a “total IT solutions” provider for its customers. This event, coupled with a very attractive offer price, revived merger discussions with Perot Systems. […]
Banking Chapter 10 1 Revenue may be inflated by booking as revenue products shipped to resellers without adequately adjusting for probable returns
Chapter 10: Analysis and Valuation of Privately Held Companies Examination Questions and Answers 1. Both public and private firms always attempt to maximize earnings growth. True or False 2. Financial information for both public and private firms is equally reliable […]
Banking Chapter 11 1 Deal structuring is fundamentally about satisfying as many of the primary objectives of the parties involved and deciding how risk will be shared
Chapter 11: Structuring the Deal: Payment and Legal Considerations Examination Questions and Answers 1. Deal structuring is fundamentally about satisfying as many of the primary objectives of the parties involved and deciding how risk will be shared. True or False […]
Banking Chapter 11 2 What could Vornado have done to assuage EOP’s concerns about the certainty of the value of the stock portion of its offer
14 1. What was the form of payment employed by both bidders for Unocal? In your judgment, why were they different? Be specific. 2. How did Chevron use the form of payment as a potential takeover strategy? Answer: As explained […]
Banking Chapter 12 1 The sale of stock, rather than assets, is generally preferable to the target firm shareholders to avoid double taxation, if the target firm is structured as a limited liability company
Chapter 12: Structuring the Deal: Tax and Accounting Considerations Examination Questions and Answers 1. Taxes are an important consideration in almost any transaction, and they are often the primary motivation for an acquisition. True or False 2. From the viewpoint […]
Banking Chapter 13 1 Accounts receivable represent an undesirable form of collateral from the lender’s point of view because they are often illiquid
1 Chapter 13: FINANCING THE DEAL Private Equity, Hedge Funds, and Other Sources of Financing Examination Questions and Answers 1. Leveraged buyout firms use the unencumbered assets and operating cash flow of the target firm to finance the transaction. True […]
Banking Chapter 13 2 In your opinion, was the buyout proposal presented by Ross Johnson’s management group in the best interests of the shareholders
16 The largest LBO in history is as well known for its theatrics as it is for its substantial improvement in shareholder value. In October 1988, H. Ross Johnson, then CEO of RJR Nabisco, proposed an MBO of the firm […]
Banking Chapter 14 1 An LBO can be valued from the perspective of common equity investors only or all those who supply funds, including common and preferred investors and lenders
Chapter 14: HIGHLY LEVERAGED TRANSACTIONS: LBO Valuation and Modeling Basics Examination Questions and Answers 1. An LBO can be valued from the perspective of common equity investors only or all those who supply funds, including common and preferred investors and […]
Banking Chapter 14 2 Why would the buyout firms want Qwest to continue to provide such services as billing and information technology support? How might such services be priced
16 3. Why might the RJR Nabisco board have accepted the KKR bid over the Johnson bid? Answer: The board may have accepted the KKR bid, because they did not believe that Johnson could finance his higher bid or simply […]
Banking Chapter 15 1 Major motivations for business alliances include risk sharing as well as gaining access to new markets and skills.
Chapter 15 Business Alliances: Joint Ventures, Partnerships, and Alliances Examination Questions and Answers 1. Business alliances may represent attractive alternatives to mergers and acquisitions. True or False 2. A joint venture is rarely an independent legal entity such as a […]
Banking Chapter 15 2 In your opinion, what were the motivations for forming the Disney-Pixar partnership in 1995? Which partner do you believe had the greatest leverage in these negotiations
12 3. How do you believe the ownership distribution for MillersCoors was determined? While both firms were significantly less profitable than Anheuser, SAB was larger and more profitable than Molson Coors in the U.S. Consequently, it is likely that the […]
Banking Chapter 16 1 In deciding to sell a business, a parent firm should compare the business’ after-tax value in sale with its pre-tax value to the parent as part of the parent.
Chapter 16: Alternative Exit and Restructuring Strategies Divestitures, Spin-Offs, Carve-Outs, Split-Ups, and Split-Offs Examination Questions and Answers 1. Divestitures, spin-offs, equity carve-outs, split-ups, and bust-ups are commonly used strategies to exit businesses. True or False 2. Empirical studies show that […]
Banking Chapter 17 1 Reforms in creditor rights tend to increase the availability and reduce the cost of credit in countries where court enforcement is quick and fair
Chapter 17 Alternative Exit and Restructuring Strategies: Bankruptcy Reorganization and Liquidation Examination Questions and Answers True/False: Answer True or False to the following questions: (50 T/Fs) 1. For capital markets to function smoothly, disputes involving the legal rights of all […]
Banking Chapter 18 1 Arbitrage should drive the prices in different markets to be the same, as investors sell those assets that are undervalued to buy those that are overvalued
Chapter 18 Cross-Border Mergers and Acquisitions: Analysis and Valuation True and False Examination Questions 1. Globally integrated capital markets provide foreigners with unfettered access to local capital markets and local residents to foreign capital markets. True or False 2. Factors […]
Banking Chapter 2 1 A typical consent decree for firms involved in a merger requires the merging parties to divest overlapping businesses or to restrict anticompetitive practices
Chapter 2 The Regulatory Environment Examination Questions and Answers Answer true or false to the following questions. 1. Insider trading involves buying or selling securities based on knowledge not available to the general public. True or False 2. The primary […]
Banking Chapter 2 2 This is the first time that a foreign regulatory body has prevented a deal involving U.S. firms only from occurring. What do you think are the long-term implications
to ignore that GE had only an 8 percent share of the global airplane leasing market and would therefore seemingly lack the market power the commission believed it could exert. On July 4, 2001, the European Union vetoed the GE […]
Banking Chapter 3 1 Friendly takeovers are negotiated settlements that are often characterized by bargaining, which remains undisclosed until the agreement has been signed
Chapter 3: The Corporate Takeover Market: Common Takeover Tactics, Anti-Takeover Defenses, and Corporate Governance Examination Questions and Answers 1. Friendly takeovers are negotiated settlements that are often characterized by bargaining, which remains undisclosed until the agreement has been signed. True […]
Banking Chapter 3 2 Do you believe that the potential severance payments that could be paid to Capellas were excessive? Explain your answer
being acquired by Qwest. Verizon also bought out the largest hostile MCI shareholder, Carlos Slim Helu. Moreover, Verizon made the special dividend to MCI shareholders payable upon approval rather than at closing as an additional inducement to gain MCI shareholder […]
Banking Chapter 4 1 An analysis of markets should involve current and potential customers, as well as current and potential competitors, but it should exclude supplier
Chapter 4 Planning: Developing Business and Acquisition Plans—Phases 1 & 2 of the Acquisition Process Examination Questions and Answer 1. A planning-based acquisition process consists of both a business plan and acquisition plan, which drive all subsequent phases of the […]
Banking Chapter 5 1 The number of selection criteria should be as extensive as possible to ensure that all factors relevant to the firm’s decision-making process are considered
Chapter 5 Implementation: Search through Closing—Phases 3 to 10 Examination Questions and Answers 1. The first step in establishing a search plan for potential acquisition or merger targets is to identify the primary screening or selection criteria. True or False […]
Banking Chapter 5 2 What alternatives to acquisition could Mattel have considered? Discuss the pros and cons of each alternative?
13 Opportunities and Threats Opportunities New Distribution Channels. Mattel.com represents 80 separate toy and software offerings. Mattel hopes to spin this operation off as a separate company when it becomes profitable. Mattel.com lost about $70 million in 1999. The other […]
Banking Chapter 6 1 Rapid integration helps to realize the planned synergies and may contribute to a higher present value for the merger or acquisition
Chapter 6 Integration: Mergers, Acquisitions, and Business Alliances Examination Questions and Answers 1. The integration process if done effectively can help to mitigate the potential loss of employees. True or False 2. Integration is among the most important factors contributing […]
Banking Chapter 6 2 Why might it take so long to integrate manufacturing operations and certain functions such as purchasing
monitoring of transactions. By setting priorities early in the process and employing small, project-focused teams, Coty was able to integrate successfully the complex supply chains of the firms in a timely manner. Discussion Questions 1. Do you agree with Coty […]
Banking Chapter 7 1 In calculating the weighted average cost of capital, the weights should be estimated using the market value of the target firm’s debt and equity
Chapter 7: Merger and Acquisition Cash Flow Valuation Basics Examination Questions and Answers True and False Questions: Answer true or false to the following questions: (Circle True or False) 1. In calculating the weighted average cost of capital, the weights […]
Banking Chapter 8 1 The replacement cost approach to valuation of a target firm ignores value created by operating the assets in combination as a going concern
Banking Chapter 9 1 Common size financial statements are useful for comparing businesses of different sizes in the same industry at different points in time
Chapter 9: Applying Financial Modeling To Value, Structure, and Negotiate Mergers and Acquisitions Examination Questions and Answers 1. The scrupulous application of GAAP ensures both consistency in comparing one firm’s financial performance with another and the accuracy of the data. […]
Banking Chapter 9 2 Using the Merger Evaluation table given in the case, determine the estimated equity values of Tribune, Times Mirror and the combined firms
Times Mirror: A Largely Traditional Business Model As essentially a traditional newspaper, Times Mirror publishes five metropolitan and two suburban daily newspapers, a variety of magazines, and professional information such as flight maps for commercial airline pilots. The Los Angeles […]
FC 11380
The disadvantages of exporting include high transportation costs, exchange rate fluctuations, and possible tariffs placed on imports into the local country. True or False Answer: Takeover attempts are likely to increase when the market value of a firm’s assets is […]
FC 15863
Debt issues not secured by specific assets are called debentures.True or False Answer: When one company acquires another, year over year historical earnings comparisons for the acquiring firm are unaffected. True or False Answer: False Corporate anti-takeover defenses are necessarily […]
FC 53641
The court must approve any plan accepted by the debtor’s shareholders and creditors. True of False Answer: Parent firms often exit businesses that consistently fail to meet or exceed the parent’s hurdle rate requirements. True or False Answer: True The […]
FC 61247
Empirical evidence suggests that discounts have declined in recent years. True or False Answer: If free cash flow to the firm is expected to remain at $10 million indefinitely and the firm’s cost of equity is .10, the present value […]
FC 95352
It is easy to differentiate between political and economic risks, since they are generally unrelated. True or False Answer: So-called permanent financing for an acquisition usually consists of long-term unsecured debt. True or False Answer: True So-called Morris Trust transactions […]
FE 16176
An option is the exclusive right, but not the obligation, to buy, sell, or use property for a specific period of time in exchange for a predetermined amount of money. True or False Answer: If a buyer expects that the […]
FE 41846
Factors contributing to the integration of global capital markets include the reduction in trade barriers, removal of capital controls, the growing disparity in tax rates among countries, floating exchange rates, and the free convertibility of currencies. True or False Answer: […]
FE 57661
A buyer may divest a significant portion of the acquired company immediately following closing without jeopardizing the tax-free status of the transaction. True or False Answer: During periods of high inflation, the market value of assets is often less than […]
FE 76645
If an investor anticipates a future cash flow stream of five or ten years, she needs to use either a five- or ten-year Treasury bond rate as the risk-free rate. True or False Answer: Deal structuring is fundamentally about satisfying […]
FE 78376
An acquisition plan is developed if management determines that an acquisition or merger is required to implement the firm’s business strategy. True or False Answer: Asset based lending does not require the borrower to pledge assets as collateral underlying the […]
FE 80392
JVs established as partnerships typically raise capital through increased contributions from existing partners or through the issuance of limited partnership interests to investors, with the sponsoring firms becoming the general partners. True or False Answer: The signing of a letter […]
FE 83570
Tender offers always consist of an offer to exchange acquirer shares for shares in the target firm. True or False Answer: The extremely high leverage associated with leveraged buyouts significantly increases the riskiness of the cash flows available to equity […]
FE 87685
The weighted average cost of capital (WACC) is the broadest measure of the firm’s cost of funds and represents the return that a firm must earn to induce investors to buy its common stock. True or False Answer: In contacting […]
FE 91854
Cash flow lenders view the borrower’s future cash flow generation capability as the primary means of recovering a loan, while largely ignoring the assets of the LBO target. True or False Answer: Stock purchases involve the exchange of the target’s […]
FE 97681
Pacific Wardrobe Acquires Surferdude Apparel by a Skillful Structuring of the Acquisition Plan Pacific Wardrobe (Pacific) is a privately owned California corporation that has annual sales of $20 million and pretax profits of $2 million. Its target market is the […]
Fin 41871
Despite the lack of public exchanges for privately held firms, Wall Street analysts have ample incentive to analyze such firms in search of emerging companies. True or False Answer: In the adjusted present value method, the levered cost of equity […]
Fin 54082
The market model of corporate governance is readily applicable to privately held, family owned firms. True or False Answer: Joint venture and alliance agreements often limit how and to whom parties to the agreements can transfer their interests. True or […]
Fin 58457
Buyers generally want to complete due diligence on the seller as quickly as possible. True or False Answer: Arbitrage should drive the prices in different markets to be the same, as investors sell those assets that are undervalued to buy […]
Fin 60193
Bylaws may provide for a staggered board, the inability to remove directors without cause, and supermajority voting requirements for approval of mergers. True or False Answer: A workout is an arrangement conducted inside of bankruptcy court by a debtor and […]
Fin 63106
The acquisition of a coal mining business by a steel manufacturing company is an example of a vertical merger. True or False Answer: All materials in a proxy contest must be filed with the SEC before they are sent to […]
FIN 63979
The U.S. Securities Act of 1933 requires that all securities offered to the public must be registered with the government. True or False Answer: The methodology for valuing cross-border transactions using discounted cash flow analysis is substantially different from that […]
Fin 70172
In a purchase of assets, the buyer retains the target’s tax attributes. True or False Answer: The Type C reorganization is used when it is essential for the acquirer not to assume any undisclosed liabilities. True or False Answer: True […]
Fin 73440
Market share is usually easy to define. True or False Answer: The adjusted present value method values firm without debt and then subtracts the value of future tax savings resulting from the tax-deductibility of interest. True or False Answer: False […]
FIN 85530
Acquirer stock is a rarely used form of payment in large transactions. True or False Answer: Successful alliances are usually characterized by partners who have attributes that either complement existing strengths or significant weaknesses. True or False Answer: False Successful […]
Fin 89003
EBITDA has become an increasingly popular measure of value for privately held firms in recent years. True or False Answer: Beta is a measure of non-diversifiable risk. True or False Answer: True Financial restructuring generally refers to actions taken by […]
FIN 92614
Using the cost of capital method to value LBOs requires adjusting the firms unlevered beta in each period using the firm’s projected debt-to-equity ratio for that period. True or False Answer: The empirical evidence supports the presumption that bigger is […]
Finance 10087
Non-U.S. buyers intending to make additional acquisitions may prefer a holding company structure. True or False Answer: An LBO transaction makes sense from the viewpoint of all investors if the present value (of the cash flows to the firm or […]
Finance 13560
Bridge financing is usually expected to be replaced within two years after the closing date of the LBO transaction. True or False Answer: Purchaser-supplier relationships are also called logistics alliances. True or False Answer: True Form of payment may consist […]
Finance 78506
The weighted average cost of capital consists only of debt and equity. True or False Answer: The comparable companies’ method and recent transactions methods of valuation are conceptually similar. True or False Answer: True A tender offer is a proposal […]