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Home
—›
Merger
Merger MCQs
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the complete absorption of one company by another, where in the acquiring firm retains its identity and the acquired firm ceases to exist as a separat...
merger
Consolidation
tender off
spinoff
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A merger is which an entirely new firm is created and both the acquired and acquiring firms cease to exist is called a:
divestiture
consolidation
tender off
spinoff
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a public offer by one firm to directly buy the shares of another firm is called a:
merger
consolidation
tender offer
spinoff
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an attempt to gain control of a firm by soliciting a sufficient number of stockholder votes to replace existing management is called a:
tender offer
proxy contest
going private transaction
leveraged buyout
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A business deal in which all publicly owned stock in a firm is replaced with complete equity ownership by a private group is called a:
tender offer
proxy contest
going- private transaction
leveraged buyout
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going private transactions in which a large percentage of money used to buy the outstanding stock is borrowed is called a:
tender offer
proxy contest
merger
leveraged buyout
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an agreement between firms to cooperate in pursuit of joint goal is called a:
consolidation
merged alliance
takeover project
strategic alliance
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an agreement between firms to create a separate, co-owned entity established to pursue a joint goal is called a:
consolidation
strategic alliance
joint venture
merged alliance
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the positive incremental net gain associated with the combination of two firms through a merger or acquisition is called:
the agency conflict
goodwill
synergy
the merger cost
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the payments made by a firm to repurchase shares of its outstanding stock from an individual investor in an attempt to eliminate a potential unfriendl...
a golden parachute
a standstill payments
greenmail
a poison pill
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the acquisition of a firm in the same industry as the bidder is called a
conglomerate
forward
backward
horizontal
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The acquisition of a firm involved with a different production process stage than the bidder is called a _____ acquisition.
forward
conglomerate
vertical
backward
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The acquisition of a firm whose business is not related to that of the bidder is called a _____ acquisition.
conglomerate
forward
backward
horizontal
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Going-private transactions in which a large percentage of the money used to buy the outstanding stock is borrowed is called a:
tender offer.
proxy contest.
merger
leveraged buyout.
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A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve...
supermajority amendment.
standstill agreement.
greenmail provision.
poison pill amendment.
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A contract wherein the bidding firm agrees to limit its holdings in the target firm is called a:
supermajority amendment.
standstill agreement.
greenmail provision.
poison pill amendment.
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Generous compensation packages paid to a firm's top management in the event of a takeover are referred to as:
golden parachutes.
poison puts.
white knights.
shark repellents.
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A friendly suitor that a target firm turns to as an alternative to a hostile bidder is called a:
golden suitor.
poison put.
white knight.
shark repellent.
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The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n):
split-up.
equity carve-out.
counter tender offer.
white knight transaction.
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The distribution of shares in a subsidiary to existing parent company stockholders is called a(n):
lockup transaction.
bear hug.
equity carve-out.
spin-off.
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Which of the following statements concerning acquisitions are correct? I. Being acquired by another firm is an effective method of replacing senior m...
I and III only
II and IV only
I and IV only
I, III, and IV only
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In a merger the:
legal status of both the acquiring firm and the target firm is terminated.
acquiring firm retains its name and legal status.
acquiring firm acquires the assets but not the liabilities of the target firm.
stockholders of the target firm have little, if any, say as to whether or not the merger occurs.
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When a building supply store acquires a lumber mill it is making a ______ acquisition.
horizontal
longitudinal
conglomerate
vertical
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If Microsoft were to acquire U.S. Airways, the acquisition would be classified as a _____ acquisition.
horizontal
longitudinal
conglomerate
vertical
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Which of the following activities are commonly associated with takeovers? I. the acquisition of assets II. proxy contests III. management buyouts ...
I and III only
II and IV only
I, III, and IV only
I, II, III, and IV
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In a tax-free acquisition, the shareholders of the target firm:
receive income that is considered to be tax-exempt.
gift their shares to a tax-exempt organization and therefore have no taxable gain.
are viewed as having exchanged their shares.
sell their shares to a qualifying entity thereby avoiding both income and capital gains taxes.
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The purchase accounting method for mergers require that:
the excess of the purchase price over the fair market value of the target firm be recorded as a one-time expense on the income statement of the acquiring firm.
goodwill be amortized on a yearly basis.
the equity of the acquiring firm be reduced by the excess of the purchase price over the fair market value of the target firm.
the assets of the target firm be recorded at their fair market value on the balance sheet of the acquiring firm.
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A proposed acquisition may create synergy by: I. increasing the market power of the combined firm. II. improving the distribution network of the acq...
I and III only
II and III only
I and IV only
I, II, and III only
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Which of the following represent potential tax gains from an acquisition? I. a reduction in the level of debt II. an increase in surplus funds III....
I and IV only
II and III only
III and IV only
I and III only
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When evaluating an acquisition, you should:
concentrate on book values and ignore market values.
focus on the total cash flows of the merged firm.
apply the rate of return that is relevant to the incremental cash flows.
ignore any one-time acquisition fees or transaction costs.
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If an acquisition does not create value, then the:
earnings per share of the acquiring firm must be the same both before and after the acquisition.
earnings per share can change but the stock price of the acquiring firm should remain constant.
price per share of the acquiring firm should increase because of the growth of the firm.
earnings per share will most likely increase while the price-earnings ratio remains constant.
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Which one of the following combinations of firms would benefit the most through the use of complementary resources?
a ski resort and a travel trailer sales outlet
a golf resort and a ski resort
a hotel and a home improvement center
a swimming pool distributor and a kitchen designer
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Which one of the following is most likely a good candidate for an acquisition that could benefit from the use of complementary resources?
a sports arena that is home only to an indoor hockey team
a hotel in a busy downtown business district of a major city
a day care center located near a major route into the main business district of a large city
an amusement park located in a centralized Florida location
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Which one of the following is most likely a good candidate for an acquisition that could benefit from the use of complementary resources?
a sports arena that is home only to an indoor hockey team
a hotel in a busy downtown business district of a major city
a day care center located near a major route into the main business district of a large city
an amusement park located in a centralized Florida location
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The shareholders of a target firm benefit the most when:
an acquiring firm has the better management team and replaces the target firm’s managers.
the management of the target firm is more efficient than the management of the acquiring firm which replaces them.
the management of both the acquiring firm and the target firm are as equivalent as possible.
their current management team is kept in place even though the managers of the acquiring firm are more suited to manage the target firm’s situation.
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Which of the following represent potential gains from an acquisition? I. the replacement of ineffective managers II. lower costs per unit produced ...
II and III only
I and IV only
I, II, and IV only
I, III, and IV only
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The value of a target firm to the acquiring firm is equal to:
the value of the target firm as a separate entity plus the incremental value derived from the acquisition.
the purchase cost of the target firm.
the value of the merged firm minus the value of the target firm as a separate entity.
the purchase cost plus the incremental value derived from the acquisition.
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Which one of the following statements is correct?
If an acquisition is made with cash, then the cost of that acquisition is dependent upon the acquisition gains.
Acquisitions made by exchanging shares of stock are normally taxable transactions.
The management of an acquiring firm may put itself at risk of losing control of the firm if they make acquisitions using shares of stock.
The stockholders of the acquiring firm will be better off when an acquisition results in losses if the acquisition was made with cash rather than with stock.
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If a firm wants to take over another firm but feels the attempt to do so will be viewed as unfriendly it could decide to take a _____ approach to the...
crown jewel
shark repellent
bear hug
counter tender offer
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Which of the following are reasons why a firm may want to divest itself of some of its assets? I. to raise cash II. to get rid of unprofitable opera...
I and II only
I, II, and III only
I, III, and IV only
I, II, III, and IV
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Which one of the following statements is correct?
A spin-off frequently follows an equity carve-out.
A split-up frequently follows a spin-off.
An equity carve-out is a specific type of acquisition.
A spin-off involves an initial public offering.
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In a merger or acquisition, a firm should be acquired if it:
generates a positive net present value to the shareholders of an acquiring firm.
is a firm in the same line of business, in which the acquirer has expertise.
is a firm in a totally different line of business which will diversity the firm.
pays a large dividend which will provide cash pass through to the acquiror.
?
A reason for acquisitions is synergy. Synergy includes:
revenue enhancements.
cost reductions.
lower taxes.
All of the above.
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One company wishes to acquire another. Which of the following forms of acquisition does not require a formal vote by the shareholders of the acquired...
Merger
Acquisition of stock
Acquisition of assets
Consolidation
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Firm A and Firm B join to create Firm AB. This is an example of:
a tender offer.
an acquisition of assets.
an acquisition of stock.
a consolidation.
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Suppose that Verizon and Sprint were to merge. Ignoring potential antitrust problems, this merger would be classified as a:
horizontal merger.
vertical merger.
conglomerate merger.
monopolistic merger.
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Suppose that General Motors has made an offer to acquire General Mills. Ignoring potential antitrust problems, this merger would be classified as a: ...
monopolistic merger.
horizontal merger.
vertical merger.
conglomerate merger.
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Suppose that Exxon-Mobil acquired Schlumberger, an exploration/drilling company. Ignoring potential antitrust problems, this merger would be classifi...
monopolistic merger.
vertical merger.
conglomerate merger.
horizontal merger.
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A dissident group solicits votes in an attempt to replace existing management. This is called a:
tender offer.
shareholder derivative action.
proxy contest.
management freeze-out.
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If the All-Star Fuel Filling Company, a chain of gasoline stations acquire the Mid-States Refining Company, a refiner of oil products, this would be ...
conglomerate acquisition.
white knight.
vertical acquisition.
going-private transaction.
?
Which of the following is not true of an acquisition of stock or tender offers?
No stockholder meetings need to be held.
No vote is required.
The bidding firm deals directly with the stockholders of the target firm.
In most cases, 100% of the stock of the target firm is tendered.
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When the management and/or a small group of investors take over a firm and the shares of the firm are delisted and no longer publicly available, this...
consolidation
vertical acquisition.
proxy contest.
going-private transaction.
?
One of the most basic reasons for a merger is:
revenue enhancing in the hopes that net losses may decrease.
increased competition.
employee benefits.
cost reductions.
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Cowboy Curtiss' Cowboy Hat Company recently completed a merger. When valuing the combined firm after the merger, which of the following is an ex...
The use of market values in valuing either the new firm.
The inclusion of cash flows that are incremental to the decision.
The use of Curtiss discount rate when valuing the cash flows of the entire company.
The inclusion of all relevant transactions cost associated with the acquisition.
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Turner, Inc. has $4.2 million in net working capital. The firm has fixed assets with a book value of $48.6 million and a market value of $53.4 million...
$0
$2.4 million
$7.2 million
$6.6 million
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Rudy's, Inc. and Blackstone, Inc. are all-equity firms. Rudy's has 1,500 shares outstanding at a market price of $22 a share. Blackstone ha...
$2.00
$4.25
$6.50
$8.00
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Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26. Sally's has 3,000 shares outstanding at a market price...
$1.43
$1.62
$1.81
$2.04
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Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26. Sally's has 3,000 shares outstanding at a market price ...
$26,000
$27,600
$57,100
$58,200
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Rudy's, Inc. and Blackstone, Inc. are all-equity firms. Rudy's has 1,500 shares outstanding at a market price of $22 a share. Blackstone has...
$30,000
$32,500
$33,000
$36,500
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ABC and XYZ are all-equity firms. ABC has 1,750 shares outstanding at a market price of $20 a share. XYZ has 2,500 shares outstanding at a price of $...
$1,000
$2,000
$3,000
$4,000
?
Firm A is acquiring Firm B for $40,000 in cash. Firm A has 2,500 shares of stock outstanding at a market value of $18 a share. Firm B has 1,500 share...
$40,000
$42,500
$45,000
$47,500
?
Firm A is acquiring Firm B for $25,000 in cash. Firm A has 2,000 shares of stock outstanding at a market value of $21 a share. Firm B has 1,200 shares...
$21.00
$21.25
$21.75
$22.00
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Alto and Solo are all-equity firms. Alto has 2,400 shares outstanding at a market price of $24 a share. Solo has 4,000 shares outstanding at a price o...
$100
$400
$1,200
$2,400
?
Principal, Inc. is acquiring Secondary Companies for $29,000 in cash. Principal has 2,500 shares of stock outstanding at a market price of $30 a share...
$30.00
$30.70
$31.80
$32.10
?
Winslow Co. has agreed to be acquired by Ferrier, Inc. for $25,000 worth of Ferrier stock. Ferrier currently has 1,500 shares of stock outstanding at...
$1
$2
$3
$4
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Brite Industries has agreed to merge with Nu-Day, Inc. for $20,000 worth of Nu-Day stock. Brite has 1,200 shares of stock outstanding at a price of $1...
$53,000
$54,250
$56,000
$59,500
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Goodday & Sons is being acquired by Baker, Inc. for $19,000 worth of Baker stock. Baker has 1,500 shares of stock outstanding at a price of $25 a sha...
760.0 shares
840.0 shares
960.0 shares
1,187.5 shares
?
Holiday & Sons is being acquired by Miller's, Inc. for $20,000 worth of Miller's stock. Miller has 1,300 shares of stock outstanding at...
1,000 shares
1,300 shares
1,500 shares
2,300 shares
?
Firm A is being acquired by Firm B for $24,000 worth of Firm B stock. The incremental value of the acquisition is $3,500. Firm A has 1,500 shares of ...
$17.50
$24.00
$30.00
$31.00
?
Firm X is being acquired by Firm Y for $35,000 worth of Firm Y stock. The incremental value of the acquisition is $2,500. Firm X has 2,000 shares of ...
$34,750
$34,789
$35,000
$35,289
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The difference between the public-offer price and the price paid by the underwriter is called
underpricing
spread
commission
margin