EBITDA has become an increasingly popular measure of value for privately held firms
in recent years. True or False
Answer:
Beta is a measure of non-diversifiable risk. True or False
Answer:
Financial restructuring generally refers to actions taken by the firm to change total debt
and equity structure. True or False
Answer:
The term financial distress could apply to a firm unable to meet its obligations or to a
specific security on which the issuer has defaulted. True or False
Answer:
The target firm’s underutilized borrowing capacity is often considered a source of value.
True or False
Answer:
Financial distress does not have a material indirect cost to firms able to avoid
bankruptcy or liquidation. True or False
Answer:
Such legal structures as holding company, joint venture, and limited liability
corporations are suitable only for acquisition vehicles but not post closing
organizations. True or False
Answer:
Decision-making in JVs and partnerships is likely to be faster than in a corporate
structure. Consequently, JVs and partnerships are more commonly used if speed is
desired during the post-closing integration. True or False
Answer:
A vertical merger is one in which the merger participants are usually competitors. True
or False
Answer:
A debt extensionoccurs when creditors agree to lengthen the period during which the
debtor firm can repay its debt. True or False
Answer:
Corporate objectives are defined as what is to be accomplished within a specific period.
True or False
Answer:
LBOs may be consummated by establishing a new subsidiary that merges with the
target. This may be done to avoid any negative impact that the new company might
have on existing customer or creditor relationships. True or False
Answer:
The appropriate financial structure can be determined from a range of different
scenarios created by making small changes in selected value drivers. True or False
Answer:
A parent firm’s decision to sell or to retain a subsidiary is often made by comparing the
after-tax equity value of the subsidiary with the pre-tax and interest sale value of the
business. True or False
Answer:
Betas do not vary over time and are quite insensitive to the time period and
methodology employed in their estimation. True or False
Answer:
A hostile tender offer is a takeover tactic in which the acquirer bypasses the target’s
board and management and goes directly to the target’s shareholders with an offer to
purchase their shares. True or False
Answer:
If the cash flows of the firm are not expected to grow or are expected to grow at a
constant rate indefinitely, the discount rate used by practitioners often is referred to as
the capitalization rate. True or False
Answer:
The size factor used to adjust the capital asset pricing model serves as a proxy for
factors such as smaller firms being subject to
higher default risk and generally being less liquid than large capitalization firms. True
or False
Answer:
Unlike the Sherman Act, which contains criminal penalties, the Clayton Act is a civil
statute and allows private parties injured by the antitrust violations to sue in federal
court for a multiple of their actual damages. True or False
Answer:
Good planning expedites sound decision making. True or False
Answer:
Unanticipated changes in exchange rates rarely influence the competitiveness of
products produced in the local market for export to the global marketplace. True or
False
Answer:
Quotas and tariffs on imports imposed by governments to protect domestic industries
tend to discourage foreign direct investment. True or False
Answer:
Investors may be willing to pay considerably more for a stock whose PEG ratio is
greater than one if they believe the increase in earnings will result in future financial
returns that significantly exceed the firm’s cost of equity. True or False
Answer:
A family owned firm’s board faces the sometimes daunting challenge of achieving the
proper balance between monitoring and collaboration to minimize the emotionality and
overlapping roles that often characterize such firms. True or False
Answer:
A higher P/E ratio for a firm may be justified if its earnings are expected to grow
significantly faster than firm’s future earnings. True or False
Answer:
Balance sheet adjustments most often are used in purchases of stock when the elapsed
time between the agreement on price and the actual closing date is short. True or False
Answer:
Determining where a firm should compete starts with deciding who the firm’s current or
potential customers are and what are their needs. True or False
Answer:
The multiple option bidding strategy introduces a certain level of uncertainty in
determining the amount of cash the acquirer will have to ultimately pay out to target
firm shareholders, since the number choosing the all cash or cash and stock option is
not known prior to the completion of the tender offer. True or False
Answer:
The implementation strategy refers to the way in which a firm chooses to implement its
business strategy. True or False
Answer:
An acquisition is one of many options available for implementing a firm’s business
plan. True or False
Answer:
The threat of corporate takeover has little impact on how responsibly a corporate board
and management manage a firm. True or False
Answer: