Mergers, Acquisition and Corporate Restructuring EXAM

Final Exam

1. Which of the following are generally considered restructuring activities?
2. A merger
3. An acquisition
4. A divestiture
5. A consolidation
6. All of the above

2. Which of the following is the most common reason that M&As often fail to meet expectations?
3. Overpayment
4. Form of payment
5. Large size of target firm
6. Inadequate post-merger due diligence
7. Poor post-merger communication

3. An investor group borrowed the money necessary to buy all of the stock of a company. Which of the following

terms best describes this transaction?

1. Merger
2. Consolidation
3. Leveraged buyout
4. Tender offer
5. Joint venture

4. Which of the following is among the least regulated industries in the U.S.?

 

1. Defenses
2. Communications
3. Retailing
4. Public utilities
5. Banking

5. The purpose of the 1968 Williams Act was to
6. Give target firm shareholders time to review takeover proposals
7. Prosecute target firm shareholders who misuse information
8. Protect target firm employees from layoffs
9. Prevent tender offers
10. Promote tender offers

6. All of the following are examples of antitakeover provisions commonly found in state statutes except for

 

1. Fair price provisions
2. Business combination provisions
3. Cash-out provisions
4. Short-form merger provisions
5. Share control provisions

7. Purchasing the target firm’s stock in the open market is a commonly used tactic to achieve all of

the following except for

1. Acquiring a controlling interest in the target firm without making such actions public knowledge.
2. Lowering the average cost of acquiring the target firm’s shares
3. Recovering the cost of an unsuccessful takeover attempt
4. Obtaining additional voting rights in the target firm
5. Strengthening the effectiveness of proxy contests

8. Over the years the U.S. Congress has transferred some of the enforcement of securities laws to organizations other than the SEC such as

 

1. Public stock exchanges
2. Financial Accounting Standards Board
3. Public Accounting Oversight Board
4. State regulatory agencies
5. All of the above

9. Some of Acme Inc.’s shareholders are very dissatisfied with the performance of the firm’s current management team and want to gain control of the board. To do so, these shareholders offer their own slate of candidates for open spaces on the firm’s board of directors. Lacking the necessary votes to elect these candidates, they are contacting other shareholders and asking them to vote for their slate of candidates. The firm’s existing management and board is asking shareholders to vote for the candidates they have proposed to fill vacant seats on the board. Which of the following terms best describes this scenario?
10. Leveraged buyout

b            Proxy contest

1. Merger
2. Divestiture
3. None of the above

10. Market profiling requires an analysis of all of the following factors except for:
11. Customers
12. Suppliers
13. Core competencies
14. Current and potential competitors
15. Product or service substitutes

FIN 444  FINAL EXAM Mergers, Acquisition and Corporate Restructuring EXAM 2016

11. All of the following are true about experience curves except for
12. Applicable primarily to differentiation strategies
13. Applicable primarily to cost leadership strategies
14. Reflect declining average unit costs due to increasing accumulated production levels
15. Reflect both economies of scale and the introduction of more efficient production methods as output increases
16. Often found in commodity-type industries

12. Examples of corporate level strategies include which of the following:

 

1. Growth
2. Diversification
3. Operational
4. Financial
5. All of the above

1. The screening process represents a refinement of the search process and commonly utilizes which of the following as selection criteria

1. Market share, product line, and profitability
2. Product line, profitability, and growth rate
3. Profitability, leverage, and growth rate
4. Degree of leverage, market share, and growth rate
5. All of the above

14. Which of the following do not represent typical closing documents in an asset purchase?
15. Letter of intent
16. Listing of any liabilities to be assumed by the buyer
17. Loan and security agreements if the transaction is to be financed with debt
18. Complete descriptions of all patents, facilities, and investments
19. Listing of assets to be acquired

15. Which of the following is not true of the acquisition process?

 

1. It always follows a predictable sequence of steps.
2. It sometimes deviates from the sequence outlined in this chapter.
3. It involves a negotiation phase
4. It involves the development of a business plan
5. None of the above

16. Certain post integration issues are best addressed prior to the closing. These include all of the following except for
17. Who will pay for employee severance expenses
18. How will employee payroll be managed during ownership transition
19. What will be done with checks from customers that the seller continues to receive after closing
20. How will the seller be reimbursed for monies owed to suppliers for products sold prior to closing
21. Who will pay for health care and disability claims that often arise just before a business is sold?

 

17. Which of the following represent commonly used techniques for integrating corporate cultures?
18. Employees are encouraged to share the same overall goals
19. “Best practices” in one department are employed in other departments
20. Multiple businesses share the same service such as the legal department
21. Employees are co-located
22. All of the above

18. Poorly executed integration often results in high employee turnover. The costs of such turnover include which of the following?

 

1. Declining morale among those that remain
2. Retraining costs
3. Declining productivity
4. Deteriorating customer service
5. All of the above

1. Which one of the following factors is not considered in calculating the firm’s cost of equity?

1. risk free rate of return
2. beta
3. interest rate on corporate debt
4. expected return on equities
5. difference between expected return on stocks and the risk free rate of return

20. Which of the following is true of the enterprise valuation model?

1. Discounts free cash flow to the firm by the cost of equity
2. Discounts free cash flow to the firm by the weighted average cost of     capital
3. Discounts free cash flow to equity by the cost of equity
4. Discounts free cash flow to equity by the weighted average cost of capital
5. None of the above

21. The incremental cash flows of a merger can relate to which of the following:
22. Working capital
23. Profits
24. Capital spending
25. Income taxes
26. All of the above

1. Which one of the following is not a commonly used method of valuing target firms?

 

1. Discounted cash flow
2. Comparable companies method
3. Recent transactions method
4. Asset oriented method
5. Share exchange ratio method

1. Intangible assets often constitute a substantial source of value to the acquiring firm.  Which of the following are not generally considered intangible assets?

 

1. Patents and technical know-how
2. Warranty and contingent claims
3. Trademarks and customer lists
4. Covenants not to compete and franchises
5. Copyrights and software

1. Which of the following are examples of intangible assets that may have value to the acquiring company?

 

1. Patents
2. Trade names
3. Customer lists and relationships
4. Covenants not to compete
5. All of the above

1. Which of the following is generally not considered a source of value to the acquiring firm?

 

1. Duplicate facilities
2. Patents
3. Land on the balance sheet at below market value
4. Warranty claims
5. Copyrights

1. Which factors would be considered in determining the feasibility of financing a proposed

takeover?

 

1. Potential dilution in EPS of the combined firms.
2. Impact on overall borrowing costs of the combined firms.
3. Possible violation of loan covenants on existing debt of the acquiring company
4. Return on total capital of the combined firms
5. All of the above.

27. A merger which is expected to produce synergy
28. Should be rejected because the synergy will dilute the combined firm’s earnings per share
29. Should be rejected because the first year’s cash flow is negative
30. Has a negative NPV
31. Should be pursued because it creates value
32. Reduces target firm revenues

1. All of the following are true of reverse mergers except for.

1. May be used to take a private firm public
2. May represent an effective alternative to an IPO
3. Commonly use private equity placements for financing
4. Requires 2 years of audited financial statements to take a private firm public
5. A and B

1. All of the following represent common sources of value in appraising private or publicly owned businesses except for

1. Intellectual property
2. Customer lists
3. Licenses
4. Contingent liabilities
5. Employment contracts

1. A corporate shell may have value because

1. It may enable the owner to avoid the costs of going public
2. The name is widely recognized
3. It could own the rights to various forms of intellectual property
4. All of the above
5. None of the above

1. Which of the following is a disadvantage of balance sheet adjustments?

1. Protects buyer from eroding values of receivable before closing
2. Audit expense
3. Protects seller from increasing values of receivables before closing
4. Protects from decreasing values of inventories before closing
5. Protects seller from increasing values of inventories before closing

32. Form of payment can involve which of the following:
33. Cash
34. Stock
35. Cash and stock
36. Rights, royalties and fees
37. All of the above

1. Which of the following are not true of net operating loss carrybacks and carryforwards?

1. Net operating loss carrybacks enable firms to recover previous taxes paid.
2. Net operating loss carryforwards enable firms to shelter future taxable income.
3. Net operating loss carryforwards may be applied to income up to 5 years into the future..
4. Loss corporations” cannot use a net operating loss carry forward unless they remain viable and in essentially the same business for at least 2 years following the closing of the acquisition.
5. None of the above

1. The tax status of the transaction may influence the purchase price by

1. Raising the price demanded by the seller to offset potential tax liabilities
2. Reducing the price demanded by the seller to offset potential tax liabilities
3. Causing the buyer to reduce the purchase price if the transaction is taxable to the target firm’s shareholders
4. Forcing the seller to agree to defer a portion of the purchase price
5. Forcing the buyer to agree to defer a portion of the purchase price

 

1. Security provisions and protective covenants are included in loan documents to increase the likelihood that the interest and principal of outstanding loans will be repaid in a timely fashion.  Which of the following is not true about security provisions and protective covenants?

1. Security features include the assignment of payments due under a specific contract to the lender.
2. Negative covenants include limits on the amount of dividends that might be paid
3. Limitations on the amount of working capital that the borrower can maintain.
4. Periodically, financial statements must be sent to lenders.
5. Automatic loan repayment acceleration if the borrower is in default on any loans outstanding

36. LBO investors must be very careful not to overpay for a target firm because
37. Major competitors tend to become more aggressive when a firm takes on large amounts of debt
38. High leverage increases the break-even point of the firm
39. Projected cash flows are often subject to significant error limiting the ability of the firm to repay its debt
40. A and B only
41. A, B, and C

1. Antitrust regulatory authorities tend to look most favorably on which type of alliances?

1. Equity partnerships
2. Marketing alliances among competitors
3. Global alliances
4. Project oriented ventures involving collaborative research
5. None of the above

1. Which of the following is generally true about financing JVs and partnerships?

1. Lenders rarely require guarantees from the parents
2. Bank loans are commonly used to meet short-term cash requirements
3. Participants must agree on an appropriate financial structure for the organization
4. Contributions by the partners of intangible assets are usually easy to value
5. Corporations are an uncommon form of legal structure

1. Which of the following is not true of a divestiture?

1. May create cash infusion for the parent firm
2. Parent ceases to exist
3. Proceeds of sale taxable if returned to shareholders through a dividend or stock buyback
4. A new legal subsidiary may be created
5. B and C

1. A diversified automotive parts supplier has decided to sell its valve manufacturing business. This sale is referred to as a

1. Merger
2. Divestiture
3. Spin-off
4. Equity carveout
5. Liquidation

41. All of the following are true of the bankruptcy process except for

1. The debtor firm may seek protection from its creditors by initiating bankruptcy or may be forced into bankruptcy by its creditors.
2. When creditors file for bankruptcy on behalf of the debtor firm, the action is said to be involuntary bankruptcy.
3. Once either a voluntary or involuntary petition is filed, the debtor firm is protected from any further legal action related to its debts until the bankruptcy proceedings are completed.
4. The filing of a petition triggers an automatic stay even before the court accepts the request.
5. An automatic stay suspends all judgments, collection activities, foreclosures, and repossessions of property by the creditors on any debt or claim that arose before the filing of the bankruptcy petition

42. All of the following represent different forms of debt restructuring except for

 

1. Debt extensions
2. Debt compositions
3. Share exchange ratios
4. Debt for equity swaps
5. A and D

43. Local country firms may be interested in alliances for which of the following reasons?

 

1. To gain access to the technology
2. To gain access to a widely recognized brand name
3. To gain access to innovative products
4. A, B, and C
5. A and B only

44. Which of the following represent common components of the global capital asset pricing model when applied to valuing firms in emerging countries?

 

1. Risk free rate of return
2. Specific country’s risk premium
3. Firm size risk premium
4. Emerging country firm’s global beta
5. All of the above

45. The most common form of payment involving non-U.S. firms engaged in M&As is

 

1. Stock
2. Cash
3. Cash and stock
4. Debt
5. Cash, stock and debt