Acquirer stock is a rarely used form of payment in large transactions. True or False
Answer:
Successful alliances are usually characterized by partners who have attributes that either
complement existing strengths or significant weaknesses. True or False
Answer:
Successful alliances are often those in which the partners contribute money, which is
generally more important than a specific skill or resource. True or False
Answer:
Purchasing target stock in the open market is a rarely used takeover tactic. True or False
Answer:
Historical cash flow may be adjusted by deducting unusually large increases in reserves
or by adding back large decreases in reserves from free cash flow to the firm. True or
False
Answer:
The weighted average valuation approach involves the use of a number of different
valuation methods, weighted by the relative importance the appraiser attributes to each
method. True or False
Answer:
Business alliances may represent attractive alternatives to merges and acquisitions. True
or False
Answer:
The final outcome of a hostile takeover is rarely affected by the composition of the
target’s stock ownership and how stockholders feel about management’s performance.
True or False
Answer:
Private equity investments are normally focused on the manufacturing industry. True or
False
Answer:
The desire to share risk is a common motive for a business alliance. True or False.
Answer:
Developing staffing plans involves identifying staffing requirements and developing a
compensation strategy, among other things. True or False
Answer:
The value of the comparable companies’ method may vary widely depending upon
when it is calculated in the business cycle. True or False
Answer:
An acquiring firm that focuses heavily on integrating a target firm, which represents a
sizeable portion of its total operations, frequently sees deterioration in its own current
operating performance. True or False
Answer:
Intangible assets such as customer lists, intellectual property, licenses, distributorships
agreements, leases, regulatory approvals, and employment contracts may offer
significant sources of value. True or False
Answer:
In using the adjusted present value method to value highly leveraged transactions, the
analyst need not be concerned about the costs of financial distress. True or False
Answer:
Tax-free reorganizations generally require that all or substantially all of the target
company’s assets or shares be acquired. True or False
Answer:
Advertising in the business or trade press is generally a very efficient way to locate
attractive acquisition target candidates. True or False
Answer:
The divesting firm is required to recognize a gain or loss for financial reporting
purposes equal to the difference between the fair value of the consideration received for
the divested operation and its market value. True or False
Answer:
For privately held firms, firm specific risk may include lack of product, industry, and
geographic diversification; limited management depth, volatile stock markets, and
unionized workforces.
True or False
Answer:
A differentiation strategy is one in which customers believe that various competitors
have significantly different cost structures. True or False
Answer:
Only acquiring firms perform due diligence. True or False
Answer:
Divestitures are always taxable to the selling firm? True or False
Answer:
A bidder may choose to use cash rather than to issue voting shares if the voting control
of its dominant shareholder is threatened as a result of the issuance of voting stock to
acquire the target firm. True or False
Answer:
Buyers should not be concerned about performing an exhaustive due diligence since in
doing so they could degrade the value of the target firm because of the disruptive nature
of a rigorous due diligence. The buyer can be assured that all significant risks can be
handled through the standard representations and warranties commonly found in
agreements of purchase and sale. True or False
Answer:
Due diligence is the process of validating assumptions underlying the initial valuation
of the target firm as well as the uncovering of factors that had not previously been
considered that could enhance or detract from the value of the target firm. True or False
Answer:
In a spin-off, the board of directors is the same as the board of directors of the parent
firm. True or False
Answer:
The output of M&A models is only as good as the accuracy and timeliness of the
numbers that are used to create the model and the quality of the assumptions used in
making the projections. True or False
Answer:
There is no limitation on non-U.S. persons or entities acting as shareholders in U.S.
corporations, except for certain regulated industries. True or False
Answer:
The promissory notecommits the borrower to repay the loan, only if the assets when
liquidated fully cover the unpaid balance. True or False
Answer:
In addition to market share, antitrust regulators consider barriers to entry, the number of
product substitutes, and the degree of product differentiation. True or False
Answer:
In discount projected tax savings in the adjusted present value method, the firm’s
unlevered cost of equity should be used, since it reflects a higher level of risk than
either the WACC or after-tax cost of debt. Tax savings are subject to risk comparable to
the firm’s cash flows in that a highly leveraged firm may default and the tax savings go
unused. True or False
Answer:
The deal makes sense to lenders and noncommon equity investors if the present value
of free cash flow to equity investors exceeds the total cost of the deal. True or False
Answer:
The adjusted present value approach takes into account the effects of leverage on risk as
debt is repaid. True or False
Answer:
Conceptually, firms with P/E ratios less than their projected growth rates may be
considered undervalued; while those with P/E ratios greater than their projected growth
rates may be viewed as overvalued. True or False
Answer:
An LBO analysis usually starts with the determination of cash available for financing a
target firm’s future debt obligations and the sources of such debt. True or False
Answer:
Financial models are of little value in determining whether the proposed purchase price
can be financed by the acquirer. True or False
Answer: