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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 its
creditors for payment or re-scheduling of payment of the debtor's obligations. True or
False
Answer:
Market profiling entails collecting sufficient data to accurately assess and characterize a
firm's competitive environment within its chosen markets. True or False
Answer:
It is unimportant whether the acquirer uses the target's or its own weighted average cost
of capital when valuing the target firm. True or False
Answer:
Termination provisions in the alliance agreement should not include buyout provisions
enabling one party to purchase another's ownership interests. True or False
Answer:
Operating risk addresses the ability of the buyer to manage the acquired company. True
or False
Answer:
The reverse triangular merger involves the acquisition subsidiary being merged with the
target and subsidiary surviving. True or False
Answer:
Equity owners or partners usually make contributions of cash or assets in direct
proportion to their ownership or partnership interests. If one party chooses not to make
a capital contribution, the ownership interests of all the parties are adjusted the changes
in their cumulative capital contributions. True or False
Answer:
An indenture is a contract between the firm that issues the long-term debt securities and
the lenders. True or False
Answer:
Acquiring businesses outside the U.S. involves additional obstacles atypical of
domestic acquisitions. True or False
Answer:
The formation of a successful alliance requires that a series of issues be resolved before
signing an alliance agreement. True or False
Answer:
The comparable companies' valuation method uses the discounted value of a firm's free
cash flow. True or False
Answer:
Friendly takeovers are negotiated settlements that are often characterized by bargaining,
which remains undisclosed until the agreement has been signed. True or False
Answer:
An LBO model is used to determine what a firm is worth in a highly leveraged
transaction and is applied when there is the potential for a financial buyer or sponsor to
acquire the business. True or False
Answer:
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. True or
False
Answer:
A leveraged buyout is the purchase of a company using as much equity as possible.
True or False
Answer:
If the acquisition of the target is believed to be very important to implement the
acquirer's strategy, the acquirer should be willing to pay up to the maximum purchase
price. True or False
Answer:
A spin-off is a transaction in which a parent creates a new legal subsidiary and
distributes shares it owns in the subsidiary to its current shareholders as a stock
dividend. True or False
Answer:
Loan covenants are promises made by the borrower that certain acts will be performed
and others will be avoided. True or False
Answer:
To demonstrate continuity of interests (COI), target shareholders must continue to own
a substantial part of the value of the combined target and acquiring firms. True or False
Answer:
Discounted cash flow and the asset-oriented valuation methods necessarily provide
identical results. True or False
Answer:
LBO investors seldom sell assets to repay debt used to acquire the firm. True or False
Answer:
Sellers may find a sale of assets attractive because they are able to maintain their
corporate existence and therefore ownership of tangible assets not acquired by the
buyer and intangible assets such as licenses, franchises, and patents. True or False
Answer:
A sometimes overlooked challenge is the failure of the legal system in an emerging
country to honor contracts. True or False
Answer:
Discretionary assets are undervalued or redundant assets not required to run the
acquired business and which can be used by the buyer to recover a portion of the
purchase price. True or False
Answer:
Although the sale value may exceed the equity value of the business, the parent may
choose to retain the business for strategic reasons. True or False
Answer:
The debtor firm often initiates the voluntary settlement process, because it generally
offers the best chance for the current owners to recover a portion of their investments
either by continuing to operate the firm or through a planned liquidation of the firm.
True or False
Answer:
Pre-merger returns to target firm shareholders average about 30% around the
announcement date of the transaction. True or False
Answer:
The acquisition plan establishes a schedule of milestones to keep the process on track
and clearly defines the authority and responsibilities of the individual charged with
managing the acquisition process. True or False
Answer:
A partnership or JV structure may be appropriate acquisition vehicle if the risk
associated with the target firm is believed to be high. True or False
Answer:
The buyer's ability to obtain adequate financing is a closing condition common to most
agreements of purchase and sale. True or False
Answer:
Private investment in public entities (PIPES) is a commonly used method of financing
reverse mergers. True or False
Answer:
Focus on customers is generally considered a factor critical to the ultimate success or
failure of the merger or acquisition. True or False
Answer:
Strategic alliances generally create separate legal entities in order to achieve their
business objectives. True or False
Answer:
If the insolvent firm is willing to accept liquidation,, legal proceedings are not
necessary, regardless of what the creditors think. True or False
Answer:
