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 target firm’s revenue has been overstated, the buyer can
reconstruct revenue by examining usage levels of the key inputs required to produce the
product or service. True or False
Answer:
The direct cost of financial distress includes the costs associated with reorganization in
bankruptcy and ultimately liquidation. True or False
Answer:
Increasing market liquidity will reduce the value of control; an increasing value of
control will reduce market liquidity and contribute to increasing liquidity discounts.
True or False
Answer:
Integration is among the most important factors contributing to the success or failure of
mergers and acquisitions. True or False
Answer:
Banks are commonly used to provide bridge or temporary financing to pay all or a
portion of the purchase price and meet possible working capital requirements until
permanent financing can be found. True or False
Answer:
Seller financing represents a very important source of financing for buyers. True or
False
Answer:
The length of time an alliance agreement remains in force depends on the partners’
objectives, the availability of resources needed to achieve these objectives, and the
accuracy of the assumptions on which the alliance’s business plans are based. True or
False
Answer:
Equity ownership changes in spin-offs, but it does not change in split-ups. True or False
Answer:
A data room is a method commonly used by sellers to limit buyer due diligence. True or
False
Answer:
The effective tax rate is calculated from actual taxes paid based on accounting
statements prepared for tax reporting purposes. True or False
Answer:
Minimum purchase price or initial offer price for a target is the target’s standalone value
or market value. True or False
Answer:
In elections involving staggered or classified boards, only one group of board members
is up for reelection each year. True or False
Answer:
If the going concern value is less than the selling or liquidation price, the firm should
seek the protection of the bankruptcy court.
Answer:
Federal antitrust laws exist to prevent individual corporations from assuming too much
market power such that they can limit their output and raise prices without concern for
any significant competitor reaction. True or False
Answer:
An alliance whose purpose is to commercialize products developed by the partners
generally should be broadly defined in specifying what products or services are to be
offered, to whom, in what geographic areas, and for what time period. True or False
Answer:
In general, a voluntary bust-up or liquidation has the advantage over mergers of
deferring the recognition of a gain by the stockholders of the selling company until they
eventually sell the stock. True or False
Answer:
Litigation is a tactic that is used only by acquiring firms. True or False
Answer:
Control of business alliances is most often accomplished through a steering committee.
True or False
Answer:
Increasingly, distressed companies are choosing to restructure inside of bankruptcy
court, rather than reaching a general agreement with creditors before seeking Chapter
11 protection. True or False
Answer:
Investors require a minimum rate of return on an investment to compensate them for the
level of perceived risk associated with that investment. True or False
Answer:
A clear statement of all assumptions underlying the model’s projections forces the
analyst to display their biases and to be prepared to defend their assumptions to others.
True or False
Answer:
Revenue-related synergy may result from the acquirer being able to sell their products
to the target firm’s customers. True or False
Answer:
Studies of restricted stock sales since 1990 indicate a median liquidity discount of about
20 percent with several showing a decline to 13 percent after 1997 following the
holding period change under Rule 144 from two years to one. True or False
Answer:
A beta coefficient is a measure of a firm’s diversifiable risk. True or False
Answer:
In a forward triangular merger, the target firm’s tax attributes in the form of any tax loss
carry forwards or carrybacks or investment tax credits carry over to the acquirer
because the target ceases to exist. True or False
Answer:
Liquidation value provides an estimate of the minimum value of the target firm. True or
False
Answer:
High employee defection during the integration period is an excellent way to realize
cost savings?
True or False
Answer:
Plant consolidation rarely requires the adoption of a common set of systems and
standards for all manufacturing activities. True or False
Answer:
To avoid being subject to fraudulent conveyance laws, a properly structured LBO
should have a balance sheet that clearly indicates solvency at the time of closing. True
or False
Answer:
Business alliances may assume a variety of legal structures. True or False
Answer:
Asset purchases require the acquiring company to buy all or a portion of the target
company’s assets and to assume at least some of the target’s liabilities in exchange for
cash or stock. True or False
Answer:
The market risk or equity premium refers to the additional rate of return in excess of the
weighted average cost of capital that investors require to purchase a firm’s equity. True
or False
Answer:
Private companies are generally not subject to the same level of rigorous controls and
reporting systems as are public companies. True or False
Answer: