NAT: Analytic skills LOC: understand the investment processes
50. After the drop in the stock price for Bavarian Brew, what is the control premium?
a.
252.0%
b.
189.6%
c.
52.6%
d.
124.4%
51. After the drop in the stock price for Bavarian Brew, what is the transaction value of the merger?
a.
$4.995 billion
b.
$2.775 billion
c.
$3.585 billion
d.
$5.239 billion
52. Corporate control refers to what aspect of a corporation or business organization?
a.
monitoring
b.
supervision
c.
direction
d.
all of the above
53. A transaction in which two or more business organizations combine into a single entity is called
a.
an acquisition
b.
a merger
c.
a buyout
d.
all of the above
54. Company B’s resources were completely absorbed by Company A after their merger. The merger
between the two companies was a
a.
statutory merger
b.
subsidiary merger
c.
consolidation
d.
none of the above
55. A structured purchase of the target’s shares in which the acquirer announces a public offer to buy a
minimum number of shares at a specific price is called
a.
LBO
b.
tender offer
c.
exchange offer
d.
green mail
56. The percentage of shares owned that triggers a legal requirement to identify one as a significant
stockholder of a company is
a.
1%
b.
4.9%
c.
5%
d.
20%
57. When a firm sells the assets and/or resources of a subsidiary or division of the firm to another
organization, that is called
a.
a recapitalizations.
b.
a divestiture.
c.
a reverse split.
d.
none of the above.
58. When a parent company creates a new company with its own shares by issuing shares of that company
which used to be a division or subsidiary of the parent company, the transaction is called
a.
a divestiture.
b.
a reverse split.
c.
a spin-off.
d.
none of the above
59. By the FTC definition, the merger between Exxon and Mobil is a(n)
a.
vertical merger.
b.
horizontal merger.
c.
integrated merger.
d.
all of the above.
60. Backward integration is a type of
a.
horizontal merger.
b.
vertical merger.
c.
market power merger.
d.
none of the above.
61. If a deli meat distributor were to acquire a meat processing plant, that would be an example of
a.
a forward integration merger.
b.
a backward integration merger.
c.
a horizontal merger.
d.
none of the above.
62. If a wheat mill were to acquire a bread making company, that would be an example of
a.
a forward integration merger.
b.
a backward integration merger.
c.
a horizontal merger.
d.
none of the above.
63. 3D Company generates 50%, 40%, and 10% of its revenues from unrelated product lines A, B, and C.
What is 3D’s Herfindahl Index?
a.
100%
b.
65%
c.
42%
d.
33%
64. The greater the number of unrelated divisions that a conglomerate firm operates in creates
a.
a smaller Herfindahl Index number.
b.
a larger Herfindahl Index number.
c.
a Herfindahl Index number that does not necessarily change.
d.
there is not enough information to determine.
65. TargetCorp. shareholders will be receiving 6 shares of Acquire Inc. for each 10 shares of TargetCorp.
that they own. TargetCorp.’s shares are currently priced at $15 per share while the shares of Acquire
are (and will remain) worth $30 per share. What is the dollar premium that Acquire is paying for each
100 shares of TargetCorp?
a.
$3,500
b.
$1,800
c.
$1,500
d.
$300
66. A mixed offering is a merger that is financed with
a.
debt and equity.
b.
cash and securities.
c.
debt and trade credit.
d.
none of the above.
67. Goodwill reflects
a.
the premium that an acquiring firm is willing to pay in excess of net asset market value for
a target firm.
b.
the premium that an acquiring firm is willing to pay in excess of net asset book value for a
target firm.
c.
the premium that an acquiring firm is willing to pay in excess of net asset market value, if
that premium is paid for with securities instead of cash.
d.
none of the above.
68. Generally speaking, the return associated with acquisitions are higher for
a.
debt financed transactions.
b.
equity financed transactions.
c.
cash transactions.
d.
the acquirer than for the target.
69. Natural growth, or internal expansion into a new market is also called
a.
acquired entry.
b.
merged entry.
c.
greenfield entry.
d.
entrepreneurial entry.
70. Economies of scale, economies of scope, and resource complementarities are all
a.
sources of operational synergy.
b.
the main reasons for an acquisition.
c.
false pretenses for an acquisition.
d.
none of the above.
71. Financial synergies are largely the anticipated result of
a.
vertical mergers.
b.
horizontal mergers.
c.
conglomerate mergers.
d.
forced mergers.
72. The suggestion that poorly monitored managers will pursue mergers to maximize their corporation’s
asset size because managerial compensation is usually based on firm size is called
a.
the managerialism theory of managers.
b.
the concept of unintended consequences.
c.
the untrustable manager theory of managers.
d.
none of the above.
73. The first U.S. merger wave, in 1897 was largely the result of
a.
a backlash created by the anti-trust legislation of the 1890’s.
b.
industrialization.
c.
a growing emphasis on a truly national economy rather than a grouping of regional
economies.
d.
none of the above.
74. The push for “portfolio” corporations in the 1960’s was so great that the vast majority of mergers that
took place during that time were
a.
horizontal mergers.
b.
vertical mergers.
c.
conglomerate mergers.
d.
none of the above.
75. The merger wave of the 1980’s was different from other merger waves because
a.
of the availability of low quality debt financing.
b.
of the need for further conglomerates during that time.
c.
of the highly scrutinized process by the department of justice during that time.
d.
none of the above.
76. Which piece of legislation was enacted to prevent the formation of trusts?
a.
the Clayton Act.
b.
the Federal Trade Commissions Act.
c.
the Sherman Antitrust Act.
d.
the Celler-Kefauver Act.
77. The purchase of additional resources by a business enterprise is known as a(n):
a.
statutory merger
b.
subsidiary merger
c.
acquisition
d.
consolidation
e.
takeover
78. A merger in which both the acquirer and target disappear as separate corporations, combining to form
an entirely new corporation with new common stock is known as a(n):
a.
statutory merger
b.
subsidiary merger
c.
acquisition
d.
consolidation
e.
takeover
79. Which of the following statements is false?
a.
Most acquisitions are hostile.
b.
Even is a bid is considered hostile, ultimately over half of those bids are successful.
c.
Hostile takeovers peaked in the 1980s.
d.
Hostile takeovers are more rare in other countries than they are in the United States.
80. A finely tuned measure of business concentration that examines how a firm concentrates its efforts on
its core business is known as:
a.
conglomerate classification
b.
corporate focus
c.
diversification focus
d.
primary classification
e.
Standard Industry Classification
81. Which of the following statements is false?
a.
Bidders almost always offer target firm shareholders a premium price for their stock.
b.
The average premium for completed U.S. mergers for the last 30 years has averaged about
20%.
c.
Premiums exist for mergers in many other countries in addition to the U.S.
d.
The merger premium is the difference between pre-merger market value and acquisition
value.
82. One benefit of external expansion is:
a.
Acquirers are able to purchase the firm at a substantial discount from market value.
b.
It slows down the expansion compared to a Greenfield entry and allows the firm more
time to evaluate the potential of the expansion.
c.
that it may help reduce potential problems associated with greenfield entry.
d.
All of the above are benefits of external expansion.
e.
Only (a) and (c) are benefits of external expansion.
83. Which of the following statements is (are) true?
a.
The merger attempt between Staples and Office Depot was denied by the regulatory
authorities because it likely would have resulted in an increase in price competition.
b.
The merger attempt between Staples and Office Depot was denied by the regulatory
authorities because it likely would have resulted in a decrease in price competition.
c.
Horizontal mergers will lead to an increase in the number of competitors in an industry.
d.
Horizontal mergers will lead to a decrease in the number of competitors in an industry.
e.
Both (b) and (d) are true.
84. Strategic rationales for mergers include:
a.
the ability to more closely monitor product quality.
b.
defensive consolidation in a mature or declining industry
c.
economics of scale
d.
synergy
e.
All of the above
85. Which of the following statements is (are) true?
a.
Junk bond financing has declined since the 1980s.
b.
Tax considerations may motivate managers to pursue a particular takeover target.
c.
Tax-loss carryforwards can be used to offset taxes due on future income for up to fifteen
years.
d.
All of the above statements are true.
e.
Only statements (b) and (c) are true.
86. Legislation intended to prevent mergers that are deemed to have anti-competitive effects on the
business environment is termed:
a.
Sherman Legislation
b.
Antitrust
c.
Anticompetitiveness legislation
d.
Tightness legislation
87. Antitrust laws were relatively strictly enforced until whose presidential administration?
a.
Clinton
b.
George W. Bush
c.
Carter
d.
Reagan
e.
Ford
88. Which Act requires public disclosure of ownership levels beyond 5 percent?
a.
Sherman Antitrust Act
b.
Williams Act
c.
Herfindahl Act
d.
Herfindahl-Hirschman Act
89. Antitrust “all-or-none” rules that disallow a partial tender offer/acquisition of a company and the
ability to control that company with less than 100% ownership are known as:
a.
fair price provisions
b.
cash-out statutes
c.
greenfield provisions
d.
antitrust provisions
e.
greenmail statutes
90. Antitrust rules that ensure that all target shareholders receive the same offer price in any tender offers
initiated by the same acquirer, limiting the ability of acquirers to buy minority shares cheaply with a
two-tiered offer is known as:
a.
fair price provisions
b.
cash-out statutes
c.
greenfield provisions
d.
antitrust provisions
e.
greenmail statutes
91. Relative operating costs are reduced for merged companies because of an increase in size that allows
for the reduction or elimination of overlapping resources
a.
economies of scale
b.
economies of scope
c.
resource complementarities
d.
synergy
92. Value-creating benefits of increased breadth of operations for merged companies
a.
economies of scale
b.
economies of scope
c.
resource complementarities
d.
synergy
93. A firm with a particular operating expertise merges with a firm with another operating strength to
create a company that has expertise in multiple areas
a.
economies of scale
b.
economies of scope
c.
resource complementarities
d.
synergy
94. A target integration in which the acquirer can absorb the target’s resources directly with no remaining
trace of the target as a separate entity.
a.
subsidiary merger
b.
statutory merger
c.
subsidiary merger
d.
reverse triangle merger
e.
consolidation
95. A merger in which the acquirer maintains the identity of the target as a separate subsidiary or division.
a.
subsidiary merger
b.
statutory merger
c.
subsidiary merger
d.
reverse triangle merger
e.
consolidation
96. A merger in which the acquirer maintains the identity of the target as a separate subsidiary or division.
a.
subsidiary merger
b.
statutory merger
c.
subsidiary merger
d.
reverse triangle merger
e.
consolidation
97. When a subsidiary of the bidder merges with the target firm
a.
subsidiary merger
b.
statutory merger
c.
subsidiary merger
d.
reverse triangle merger
e.
consolidation
98. A merger in which both the acquirer and target disappear as separate corporations, combining to form
an entirely new corporation with new common stock.
a.
subsidiary merger
b.
statutory merger
c.
subsidiary merger
d.
reverse triangle merger
e.
consolidation
99. In the periods 2000-2010 the abnormal returns for the bidding firm was
a.
-8.23%
b.
-1.65%
c.
21.92%
d.
2.68%
100. In the periods 2000-2010 the abnormal returns for the target firm was
a.
-8.23%
b.
-1.65%
c.
21.92%
d.
2.68%
101. According to the McKinsey study the percentage of merger synergies that meet incremental revenue
expectations.
a.
Less than 25%
b.
25-50%
c.
50-75%
d.
More than 75%