FIN/444 Mergers, Acquisition and
Corporate Restructuring
1. The pooling of interest and the purchase method are the
two methods allowed by the FASB in accounting for Mergers and Acquisitions.
A.
True
B.
False
2. FASB prefers the purchase method of accounting for
business combinations because
CEOâs
of major corporations find it more beneficial
Purchase
method allows for amortization of goodwill over a maximum of 40 years
Merger accounting and
subsequent asset values should be consistent with market valuations
Purchase
method is more easily understood by accountants
3. Strategic planning is the responsibility of the CEO and
executive management team?
True
False
4. Which of the statements below is an essential element of
the strategic planning process
Formulation of internal organizational performance
measurements.
Formulation of mid-range programs and short-run
plans.
Analysis of company, competitors, industry, domestic
economy, and international economies.
A and
C only
All of the above
5. Strategic planning processes can utilize formal
procedures or develop through informal communications throughout the
organization.
True
False
6. According to the study done by Jensen (1986) he found
that
Firms with substantially
high free cash flow leads to value-reducing diversification decisions
Mergers
create cost saving synergies
Produce economies of scale
B
and C only
7. According to studies done by Hirshleifer and Png
(1989) and French and McCormick (1984) suggested that
a seller might want to
limit the competitiveness of the selling process because it can indirectly
affect the aggressiveness of any one bidder and adversely affect the
combined net gains from the transaction.
A seller might
want to promote the competitiveness of the selling process because it can
indirectly affect the aggressiveness of any one bidder and help increase
the combined net gains from the transaction
Bidders
in a takeover attempt face a potential winnerâs curse
None
of the above
8. Between
1895 and 1904 what type of merger was most prevalent?
Vertical Mergers
Conglomerate Mergers
Horizontal Mergers
None of the above
9. Andrade, Mitchell, and Stafford
(2001) concluded that much of the merger activity that transpired during the
â90s was caused by
Technological
Innovations
Availability
of Junk Bonds
Capital
Markets
Deregulation
10. Which characteristics will not make a firm vulnerable
to a takeover :
A.
A low stock price in relation to the replacement cost of
assets or their potential earning power (a low q-ratio).
B. A highly liquid
balance sheet with large amounts of excess cash, a valuable securities portfolio,and significant
unused debt capacity.
Good cash flow
relative to current stock prices; low P/EPS ratios.
Subsidiaries or
properties that could be sold off that would significantly impair cash
flow.
11. Which of the following are defenses against hostile takeover
bids:
A.
Classified Boards
B.
White Knight
C.
Super Majority
Amendments
D.
All of the above
E.
B and C only
12. The leading methods used in the valuation of a firm
for merger analysis are:
the comparable
companies or comparable transactions approach
the
spreadsheet approach
the
formula approach
all of the above
A
and B only
13. The
Black-Scholes option pricing model should be used
with which of the valuation techniques?
the spreadsheet
approach
the
comparable companies or comparable transactions approach
the
MBA approach
A and B only
14. When calculating the WACC we should use which of the
following?
Book value for
both debt & equity
Market value for both debt &
equity
Book
value for debt & market value for equity
Market
value for debt & book value for equity
15. Three major types of merger motivations were
identified by Berkovitch and Narayanan (1993):
synergy
hubris
operating innovations
All
of the above
A & B only
16. All
are reasons for given for merger activity except
Technological change
Economies of scale
New industries
Super Majority amendments
Deregulation and
regulation
17. Tender
offers can be either hostile or friendly
True
False
18. All
are types of mergers except
Horizontal
Vertical
Hubris
Conglomerate
19. Which
federal securities law regulates the sale of securities
Securities Act of 1933 (SA)
Securities
Exchange Act of 1934 (SEA)
Public Utility
Holding Company Act of 1935 (PUHCA)
Investment
Company Act of 1940 (ICA)
20. This
act applies to public issues of debt securities
with a value of $5 million or more.
Securities Act
of 1933 (SA)
Securities
Exchange Act of 1934 (SEA)
The Trust Indenture Act of
1939
Investment
Company Act of 1940 (ICA)
21. Its stated purpose was to protect target shareholders
from swift and secret takeovers
Securities Act
of 1933 (SA)
Securities
Exchange Act of 1934 (SEA)
The Trust
Indenture Act of 1939
The Williams Act
22. A strategic alliance represents a combination of subsets of
assets contributed by two (or more) business entities for a specific business
purpose and a limited duration.
True
False
23. All of the following are rationales for joint ventures except
Tax
Aspects
Knowledge
Acquisition
Risk Reduction
Capital Markets
24. Strategic alliances are informal or formal decisions
or agreements between two or more firms to cooperate in some form of
relationship.
True
False
25. Defined contribution plans can be of three kinds: stock
bonus plans, profit-sharing plans, and money purchase plans.
True
False
26. Under ERISA, ESOPs are stock bonus plans or combined stock
bonus plans and money purchase plans designed to invest primarily in qualifying
employer securities.
True
False
27. According to The U.S. General Accounting Office (GAO) (1986)
all of the following are types of ESOPs
except: leveraged,
leveragable
nonleveraged
stock
tax
credit
28. ESOPâs can be used as an antitakeover weapons
True
False
29. The master limited partnership (MLP) is a type of limited
partnership whose shares are publicly traded.
True
False
30. The most widely used method for determining the cost
of equity is
A.
The Dividend Growth
Model
B.
The CAPM
C.
The Bond Yield Plus
Equity Risk model
D.
None of the above
31. The risk free rate used in the CAPM is:
AAA rated
corporate bond
U.S. 3 month
Treasury Bill
U.S. 10 year Treasury Bond
Aaa rated
corporate bond
32. Which of the following is a type of share repurchase?
Clientele effect
Signaling effect
Dutch auctions
None of the
above
33. Which of the following is a form of restructuring and
divestitures?
A.
Asset Sales
B.
Equity carve-outs
C.
Spin-offs
D.
A and C only
E.
All of the above
34. A split-upis defined as the separation of a
company into two or more parts.
True
False
35. In all of the listed research papers, corporate
divestitures, on average, create wealth for parent shareholders.
True
False
36. In dual-class recapitalizations (DCRs), firms have created a
second class of common stock that has limited voting rights and usually a
preferential claim to the firmâs cash flows.
True
False
37. The main reason/reasons for the large levels of foreign
M&A activity is:
Europe becoming a common market place
Globalization
International
Competition
All of the above
38. U.S.
company acquisitions of non-U.S. companies are in the range of ______% to
______% of total world M&A activity.
4%
to 7%
11% to 15%
1%
to 3%
None
of the above
39. Growth is the most important motive for international
mergers.
True
False
40. The fraud and self-dealing revelations of new millennium resulted
in investigations by congress, the SEC, and the State Attorney General in
several jurisdictions, particularly New
York and led to the Sarbanes-Oxley Act (SOA).
True
False
41. A widely held view is that about 67% of acquisitions do not
earn the buyersâ cost of capital.
True
False
42. Mergers fail for which of the following reason/reasons?
Pay
too much
Overoptimistic
expected synergies
Greenmail
All
of the above
A and B only
43. The modern literature on long-range planning
indicates that long-range strategic planning involves at least the following
elements:
A. Environmental
reassessment for new technologies, new industries, and new forms of
competitors.
B. A consideration of capabilities,
missions, and environmental interactions from the standpoint of the firm and its divisions.
C. An emphasis on process rather than
particular goals or objectives.
D. An emphasis on iteration and on an
iterative feedback process as a methodology for dealing with ill-structured
problems.
E. All of the above
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