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1. Which of the following is defined as a transaction in which two firms combine to form a
single firm?
2. Which of the following is defined as the purchase of one firm by another firm?
3. Which of the following is a type of merger in which an entirely new firm is created?
4. Which of the following is a type of merger in which two firms that sell the same products
in different market areas are combined?
5. Which of the following is a combination of a firm with a supplier or distributor?
6. Which of the following combines two companies that have no related products or
markets?
7. Which of the following is a combination of firms that sell different, but somewhat related,
products?
8. Which of these terms is defined as the value of the combined firms being greater than the
sum of the value of the two firms individually?
9. Which of the following is NOT one of the sources of value enhancing synergy in a
merger?
10. Which of the following is defined as a merged firm's ability to generate synergistic cost
savings through the joint use of inputs in producing multiple products?
11. Which of the following is defined as a merged firm's advantage over smaller firms if cuts
associated with the merger lower the firm's operating costs of production?
12. Which of the following is cost savings usually attributed to superior management skills
and other difficult-to-measure managerial factors?
13. Which of the following is NOT a tax consideration motive for a merger?
14. Which of these makes the following a true statement? Diversification resulting from a
merger can:
15. Which of the following is the most extreme type of financial distress for a business?
16. Which of the following is the type of financial distress in which the return on a firm's
assets is less than the firm's cost of capital?
17. Which of the following is the type of financial distress in which a firm's operating cash
flows are not sufficient to pay its liabilities as they come due?
18. Which of the following is the termination of the firm as a going concern in which assets
are sold and any proceeds go to pay off the firm's creditors?
19. Which of the following is a voluntary liquidation proceeding that passes the liquidation of
the firm's assets to a third party that is designated as the assignee or trustee?
20. Which of these is the person who liquidates the firm's assets through a private sale or
public auction and then distributes any proceeds from the sale to the firms' creditors and
stockholders?
21. Which of the following is a formal bankruptcy proceeding which outlines the process to
be followed for liquidating a failed firm?
22. Which of the following is a formal bankruptcy proceeding involving the reorganization of
the corporation with some provision for repayment to the firm's creditors?
23. Which of the following involves a firm and its creditors agreeing to a private
reorganization outside the formal bankruptcy process?
24. Calculation of Average Costs with Economies of Scope Jan's Bakery is considering a
merger with Tina's Cookies. Jan's total operating costs of producing services are $300,000 for a
sales volume of $2 million. Tina's total operating costs of producing services are $75,000 for a
sales volume of $600,000. If the two firms merge, calculate the total average cost for the merged
firm assuming no synergies.
25. Calculation of Average Costs with Economies of Scope Flowers Galore is considering a
merger with Balloons N More. Flowers Galore's total operating costs of producing services are
$400,000 for a sales volume of $4 million. Balloons' total operating costs of producing services
are $30,000 for a sales volume of $700,000. If the two firms merge, calculate the total average
cost for the merged firm assuming no synergies.
26. Calculation of Average Costs with Economies of Scope Building Supplies is
considering a merger with Tools and More. Building's total operating costs of producing services
are $4 million for a sales volume of $20 million. Tools' total operating costs of producing services
are $1 million for a sales volume of $5 million. Suppose that synergies in the production process
result in a cost of production for the merged firms totaling $4.8 million with total sales remaining
unchanged. Calculate the total average cost for the merged firm.
27. Calculation of Change in HHI Associated with a Merger Consider a market that has
three firms with the following market shares:
Firm A 25 percent
Firm B 55 percent
Firm C 20 percent
Suppose Firm A wants to acquire Firm C so that the post-acquisition market would exhibit the
following shares:
A + C = 45 percent
B = 55 percent
What is the change in the HHI resulting from the merger?
28. Calculation of Change in HHI Associated with a Merger Consider a market that has
three firms with the following market shares:
Firm A 15 percent
Firm B 25 percent
Firm C 60 percent
Suppose Firm B want to acquire Firm A so that the post-acquisition market would exhibit the
following shares:
B + A = 40 percent
C = 60 percent
What is the change in the HHI resulting from the merger?
29. Calculation of Altman's
Z
-Score: Suppose that the financial ratios of a potential
borrowing firm took the following values:
X1
= Net working capital/Total assets = 0.15,
X2
=
Retained earnings/Total assets = 0.10,
X3
= Earnings before interest and taxes/Total assets =
0.15,
X4
= Market value of equity/Book value of long-term debt = 0.40,
X5
= Sales/Total assets
ratio = 0.8. Calculate the Altman's
Z
-score for this firm.
30. Calculation of Altman's
Z
-Score: Suppose that the financial ratios of a potential
borrowing firm took the following values:
X1
= Net working capital/Total assets = 0.25,
X2
=
Retained earnings/Total assets = 0.30,
X3
= Earnings before interest and taxes/Total assets =
0.35,
X4
= Market value of equity/Book value of long-term debt = 0.50,
X5
= Sales/Total assets
ratio = 0.9. Calculate the Altman's
Z
-score for this firm.
