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 of the firm is $100 million. True or False
Answer:
U.S. bankruptcy laws and practices focus on maintaining shareholder value during the
bankruptcy process. True or False
Answer:
Mergers are legal in all countries. True or False
Answer:
Regulatory and political change seldom plays a role in increasing or decreasing the
level of M&A activity.
True or False
Answer:
Negotiated agreements between the buyer and seller rarely have a provision enabling
the parties to back out, if the proposed transaction is challenged by the FTC or SEC.
True or False
Answer:
Disadvantages of the comparable industry method of valuation include the presumption
that industry multiples are actually comparable and that analysts’ earnings projections
are unbiased. True or False
Answer:
The value of an earnout payment is never subject to a cap so as not to discourage the
seller from working diligently to exceed the payment threshold. True or False
Answer:
Both a divestiture and a spin-off generally generate a cash infusion for the parent. True
or False
Answer:
The management integration team’s primary responsibilities should be monitoring the
daily operations of the work-teams assigned to complete specific tasks during the
integration.
True or False
Answer:
Rights to intellectual property, royalties from licenses and employment agreements are
often used to close the gap on price between what the seller wants and what the buyer is
willing to pay because the income generated is tax free to the recipient. True or False
Answer:
A joint venture rarely takes the legal form of a corporation. True or False
Answer:
Financially distressed firms also affect communities in which they are located in terms
of increasing unemployment and eroding the tax base. True or False
Answer:
Unlike other legal forms, the C corporate structure has an indefinite life as it does not
have to be dissolved as a result of the death of the owners or if one of the owners
wishes to liquidate their ownership position. True or False
Answer:
A holding company is an example of either an acquisition vehicle or post-closing
organization. True or False
Answer:
Stakeholders in a firm refer to shareholders only. True or False
Answer:
The merger of Exxon Oil Company and Mobil Oil Company was considered a
horizontal merger. True or False
Answer:
U.S. and European Union antitrust law are virtually identical. True or False
Answer:
When the target is a foreign firm, it is often appropriate to operate it separately from the
rest of the acquirer’s operations because of the potential disruption from significant
cultural differences. True or False
Answer:
The market share of the combined firms is rarely an important factor in determining
whether a proposed transaction is likely to be considered anti-competitive. True or False
Answer:
A target firm is unlikely to reject a bid without getting a “fairness” opinion from an
investment banker stating that the offer is inadequate. True or False
Answer:
In a private solicitation, the parent firm may hire an investment banker or undertake on
its own to identify potential buyers to be contacted. True or False
Answer:
When a firm is unable to pay its liabilities as they come due, it is said to be in
bankruptcy. True or False
Answer:
Whether cash is the predominant form of payment will depend on a variety of factors.
These include the acquirer’s current leverage, potential near-term earnings per share
dilution of issuing new shares, the seller’s preference for cash or acquirer stock, and the
extent to which the acquirer wishes to maintain control over the combined firms. True
or False
Answer:
Federal and state laws make it extremely difficult for a bidder to acquire a controlling
interest in a target without such actions becoming public knowledge. True or False
Answer:
Failure to define scope adequately can result in situations in which the alliance may be
competing with the products or services offered by the parent firms. True or False
Answer:
Free cash flow to the firm is also called enterprise cash flow. True or False
Answer:
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.
True or False
Answer:
Revenue growth is often sacrificed in an effort to engage in aggressive cost cutting
during the integration period. True or False
Answer:
It is possible to determine the equity value of the firm if you know the present value of
free cash flow to the firm and the book value of the firm’s outstanding shares. True or
False
Answer:
The appropriate approach for initiating contact with a target firm is essentially the same
for large or small, public or private companies. True or False
Answer:
“No shop” provisions are seldom found in letters of intent. True or False
Answer: