Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
________ may result in expansion of operations in an existing product line and elimination of a
competitor.
1)
A)
Vertical merger
B)
Horizontal merger
C)
Congeneric merger
D)
Conglomerate merger
2)
A ________ occurs when the operations of the acquiring and target firms are combined in order to
achieve economies and thereby cause the performance of the merged firm to exceed that of the
pre–merged firm.
2)
A)
financial merger
B)
operating merger
C)
strategic merger
D)
hostile takeover
3)
A friendly merger transaction is typically consummated through all of the following EXCEPT
3)
A)
a cash purchase.
B)
a tender offer.
C)
an exchange of the acquirer’s stock and bonds.
D)
an exchange of the acquirer’s stock.
4)
Greater control over the acquisition of raw materials or the distribution of finished goods is an
economic benefit of
4)
A)
congeneric merger.
B)
horizontal merger.
C)
conglomerate merger.
D)
vertical merger.
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5)
In defending against a hostile takeover, the strategy that involves the firm repurchasing through
negotiation a large block of stock at a premium from one or more shareholders in order to end
those shareholders’ hostile takeover attempt is known as the ________ strategy.
5)
A)
golden parachute
B)
poison pill
C)
white knight
D)
greenmail
6)
In defending against a hostile takeover, the strategy that involves the target firm finding a more
suitable acquirer and prompting it to compete with the initial hostile acquirer to take over the firm
is called the ________ strategy.
6)
A)
greenmail
B)
white knight
C)
poison pill
D)
golden parachute
B
7)
Typically, reasons for undertaking mergers are
7)
A)
only strategic.
B)
in conflict with wealth maximization.
C)
strategic or financial.
D)
only financial.
C
8)
________ results from the combination of firms in the same line of business.
8)
A)
Horizontal growth
B)
Congeneric growth
C)
Conglomerate diversification
D)
Vertical growth
A
9)
The firm in a merger transaction that attempts to merge or takeover another company is called the
9)
A)
target company.
B)
holding company.
C)
conglomerate.
D)
acquiring company.
D
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D
10)
In defending against hostile takeover attempts, a company will include provisions in the
employment contracts of key executives that provide them with sizable compensation if the firm is
taken over. This is called the ________ strategy.
10)
A)
golden parachute
B)
shark repellent
C)
greenmail
D)
white knight
11)
Business combinations are used by firms to externally expand in order to achieve all of the
following objectives EXCEPT
11)
A)
to increase common stock outstanding.
B)
to acquire needed assets.
C)
to increase productive capacity.
D)
to increase liquidity.
12)
A hostile merger is typically accomplished through
12)
A)
an exchange of the acquirer’s stocks and bonds.
B)
a cash purchase.
C)
a tender offer.
D)
an exchange of the acquirer’s stock.
13)
When a firm undertakes a merger in order to eliminate redundant functions or increase market
share, this is an example of
13)
A)
financial merger.
B)
friendly merger.
C)
hostile takeover.
D)
strategic merger.
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14)
In defending against a hostile takeover, the strategy that involves the target firm creating securities
that give their holders certain rights that become effective when a takeover is attempted is called
the ________ strategy.
14)
A)
golden parachute
B)
shark repellent
C)
poison pill
D)
greenmail
15)
The firm in a merger transaction that is being pursued as a takeover potential is called the
15)
A)
conglomerate.
B)
holding company.
C)
acquiring company.
D)
target company.
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
16)
Holding companies simply are corporations that have voting control of one or more other
corporations and the companies they control are often referred to as subsidiaries.
16)
17)
Strategic mergers seek to achieve various economies of scale by eliminating redundant functions,
increasing market share, and improving raw material sourcing and finished product distribution.
17)
18)
Primary motives for merging include growth or diversification, synergy, fund raising, increased
managerial skill or technology, tax considerations, increased ownership liquidity, and defense
against takeovers.
18)
19)
Greater control over the acquisition of new materials or the distribution of finished goods is an
economic benefit of horizontal merger.
19)
20)
The synergy of mergers includes the economies of scale resulting from the merged firms’ lower
overhead.
20)
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21)
A vertical merger may result in expansion of operations in an existing product line and elimination
of a competitor.
21)
22)
A white knight is a takeover defense in which a firm issues securities that give their holders certain
rights that become effective when a takeover is attempted and that make the target firm less
desirable to a hostile acquirer.
22)
23)
Popular takeover defense methods include white knights, poison pills, greenmail and golden
parachutes.
23)
24)
A conglomerate merger is a merger combining firms in unrelated businesses.
24)
25)
Primary motives for merging include growth or diversification, synergy, fund raising, increased
managerial skill or technology, tax considerations, increased ownership liquidity, and defense
against takeovers.
25)
26)
A vertical merger is a merger of two firms in the same line of business.
26)
27)
A poison pill is a takeover defense in which the target firm finds an acquirer more to its liking than
the initial hostile acquirer and prompts the two to compete to take over the firm.
27)
28)
A horizontal merger is a merger in which one firm acquires another firm in the same general
industry but neither in the same line of business nor a supplier or customer.
28)
29)
The overriding goal for merging is the maximization of the owners’ wealth as reflected in the
acquirer’s share price.
29)
30)
Firms’ motives to merge include growth or diversification, synergy, fundraising, tax considerations,
and defense against takeover.
30)
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Answer Key
Testname: C23
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