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 of intent usually precludes the target firm from suing the
potential acquiring company if the acquirer eventually withdraws its initial offer. True
or False
Answer:
The fair value conceptis applied when no strong market exists for a business or it is not
possible to identify the value of substantially similar firms. True or False
Answer:
According to the management entrenchment hypothesis, takeover defenses are designed
to protect the target firm’s management from a hostile takeover. True or False
Answer:
In a two-tiered offer, target shareholders typically received two offers, which potentially
have different values. True or False
Answer:
The divestiture of a business always results in the parent receiving cash from the buyer?
True or False
Answer:
Goodwill no longer has to be amortized over its projected life, but it must be written off
if it is deemed to have been impaired. Impairment reviews are to be taken annually or
whenever the firm has experienced an event which materially affects the value of its
assets. True or False
Answer:
Companies wishing to do business abroad often enter into an alliance with an
indigenous company to facilitate entry into a foreign market. The foreign company is
usually the majority owner in such relationships. True or False
Answer:
A fixed exchange collar agreement may involve a fixed exchange ratio as long as the
acquirer’s share price remains within a narrow range, calculated as of the effective date
of the signing of the agreement of purchase and sale. True or False
Answer:
Discrepancies between the way a firm records its financial statements and GAAP
accounting standards are common and should be ignored. True or False
Answer:
Conventional capital budgeting procedures are of little use in valuing an LBO. True or
False
Answer:
Junk bonds are high-yield bonds either rated by the credit-rating agencies as below
investment grade or not rated at all. True or False
Answer:
The IRS generally views forward triangular cash mergers as a purchase of target stock
followed by a liquidation of the target for which target shareholders will recognize a
taxable gain or loss as if they had sold their shares.
True or False
Answer:
More and more firms are identifying potential target companies on their own without
the use of investment bankers. True or False
Answer:
The appropriate discount rate for the combined firms is generally the target’s cost of
capital unless the two firms have similar risk profiles and are based in the same country.
True or false
Answer:
In a statutory merger, both the acquiring and target firms survive. True or False
Answer:
In either a public or private solicitation, interested parties are asked to sign
confidentiality agreements after they are given access to proprietary information but
before they are asked to make a bid. True or False
Answer:
It is usually in the best interests of the seller to allow the buyer unrestricted access to all
seller employees and records doing due diligence in order to create an atmosphere of
cooperation and goodwill. True or False
Answer:
Divestitures, spin-offs, equity carve-outs, split-ups, split-offs, and bust-ups are
commonly used strategies to exit businesses and to redeploy corporate assets by
returning cash or noncash assets through a special dividend to shareholders. True or
False
Answer:
Enabling the customer to see a consistent image in advertising and promotional
campaigns is often the greatest challenge facing the integration of the marketing
function. True or False
Answer:
While bankrupt firms generally are unable to meet the listing requirements of the major
stock exchanges, their shares may trade in the over-the-counter market. True or False
Answer:
Asset valuation includes specific business risks but ignores any adjustment for liquidity
risk. True or False
Answer:
It is critical for the analyst to remember that high growth rates by themselves are likely
to increase multiples such as a firm’s price to earnings ratio even without any
improvement in financial returns. True or False
Answer:
The automotive industry rarely uses alliances to provide additional production capacity,
distribution outlets, technology development, and parts supply. True or False
Answer:
Legal insolvencyoccurs when a firm’s liabilities exceed the book value of its assets.
True or False
Answer:
If the acquirer invokes a 338 election no taxes will have to be paid on any gains on
assets written up to their fair market value. True or False
Answer:
When the firm increases its debt in direct proportion to the market value of its equity,
the level of the debt is perfectly correlated
with the firm’s market value. True or False
Answer:
The target company is the firm being solicited by the acquiring company. True or False
Answer:
Some analysts suggest that the problem of a variable discount rate can be avoided by
separating the value of a firm’s operations into two components: the firm’s value as if it
were debt free and the value of interest tax savings. True or False
Answer:
The tax benefits of higher leverage may be partially or entirely offset by the higher
probability of default associated with an increase in leverage. True or False
Answer:
The choice of legal structure should be made before the parties to the business alliance
are comfortable with the venture’s objectives, potential synergy, and preliminary
financial analysis of projected returns and risk. True or False
Answer:
In the absence of debt, the unlevered beta measures the volatility of the firm’s financial
return to changes in the general stock market’s overall return. True or False
Answer:
A control premium is the additional premium a buyer is willing to pay for the right to
direct the activities of a firm. True or False
Answer:
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 how
their competitors might react. True or False
Answer:
A business that is rich in high-growth opportunities may be an excellent candidate for
divestiture to a strategic buyer with significant cash resources and limited growth
opportunities. True or False
Answer:
Communication plans should be developed for all stakeholder groups except for
suppliers, because they generally have a lower priority in the integration process. True
or False
Answer:
The M&A market for employer firms tends to be concentrated among smaller firms, as
firms in the United States with 99 or fewer employees account for 98% of all firms with
employees. True or False
Answer:
Equity carve-outs have some of the characteristics of both divestitures and spin-offs.
True or False
Answer:
In a statutory merger, the acquiring company assumes the assets and liabilities of the
target firm in accordance with the prevailing federal government statutes. True or False
Answer: