Question 1

A leveraged buyout is a transaction in which a publicly traded company is converted into a privately held firm.

Accepted Answer

A) True 
 B)False

Question 2

Elliott Mfg. is considering acquiring Fox Inc. Fox's cash flows have been estimated in detail for the next three years and are $40M, $45M and $50M respectively. A terminal value consistent with that estimate has been calculated at $700M. The risk-adjusted discount rate for analysis is 12%.
a.	In total, what should Fox be worth to Elliott?
b.	If Fox, Inc. has 12 million shares outstanding, what is the most Elliott should offer, per share, for its stock?
c.	What growth rate did Elliott assume in calculating Fox's terminal value?
d.	If the growth rate assumption changes to 8%, what is the new maximum offer?

Accepted Answer

50 + 50g = 84 -700g
750g = 3...

Question 3

Internal growth is perhaps the most persuasive reason for mergers.

Accepted Answer

A) True 
 B)False

Question 4

In a merger, the minimum total price acceptable to the target's shareholders is:

Accepted Answer

A)   more than the pre-merger value of the firm.
B)   the additional value created by the merger in the eyes of the acquirer.
C)   the pre-merger value of the firm.
D)   b plus c
E)   None of the aboveF) A) and E)
G) B) and C)

Question 5

A firm acquires a competitor in a vertical merger.

Accepted Answer

A) True 
 B)False

Question 6

In strategic mergers, success is based on making money through the operation of financial markets rather than through the operation of the underlying business.

Accepted Answer

A) True 
 B)False

Question 7

Economies of scale in production and distribution would generally be highest in:

Accepted Answer

A)   vertical mergers.
B)   product extension mergers.
C)   horizontal mergers.
D)   any form of merger.E) A) and D)
F) A) and C)

Question 8

Although the courts usually permit bankrupt firms to continue in business, they protect creditors' interests by requiring:

Accepted Answer

A)   that all disbursements be approved by the court.
B)   that all checks be countersigned by a bankruptcy judge.
C)   that a trustee oversees the company's operation while it is in bankruptcy.
D)   All of the aboveE) B) and D)
F) None of the above

Question 9

The most likely impetus for a merger between two companies in the same business but in different regions is ____.

Accepted Answer

A)   external growth
B)   internal growth
C)   synergy
D)   to form a conglomerateE) All of the above
F) None of the above

Question 10

According to the IRS, tax savings cannot be the only reason for a merger.

Accepted Answer

A) True 
 B)False

Question 11

Anti-trust legislation:

Accepted Answer

A)   is enforced by the Justice Department as well as the Federal Trade Commission.
B)   no longer applies to business combinations.
C)   does not apply to conglomerate mergers.
D)   a and c
E)   None of the aboveF) B) and D)
G) A) and D)

Question 12

Alpha Corp is thinking about acquiring Omega Inc. Omega generated cash of $50M last year and is expected to grow at 5% indefinitely. Alpha expects synergies of at least $15M per year after the merger which will also grow at 5%. Omega has 20M shares of common stock outstanding on which stockholders earn a return of about 15%. What is the maximum price per share Alpha should offer for Omega?

Accepted Answer

Current cash flow = $50M + $15...

Question 13

A combination of companies that compete directly is a:

Accepted Answer

A)   conglomerate merger.
B)   vertical merger.
C)   horizontal merger.
D)   takeover.E) A) and B)
F) A) and C)

Question 14

The first and last priorities for receiving funds in a bankruptcy are:

Accepted Answer

A)   administrative expenses of the bankruptcy proceedings; common stockholders.
B)   unpaid employees, unsecured creditors.
C)   secured creditors; common stockholders
D)   customers; preferred stockholders.E) B) and D)
F) None of the above

Question 15

In a friendly merger, the target's management and board of directors approve of the deal and cooperate with the acquiring company.

Accepted Answer

A) True 
 B)False

Question 16

A junk bond is:

Accepted Answer

A)   a low risk bond that pays high yields.
B)   a high-risk bond that pays low yields.
C)   a high-risk bond that pays high yields.
D)   a low risk bond that pays low yields.E) A) and B)
F) None of the above

Question 17

In many financial mergers, private equity groups are taking advantage of firms whose market value is less than their intrinsic value.

Accepted Answer

A) True 
 B)False

Question 18

In discounting the forecasted future cash flows of a target company for valuation purposes, which discount rate should be used?

Accepted Answer

A)   WACC of the acquiring company
B)   Cost of equity of the acquiring company
C)   Cost of debt of the target company
D)   Cost of equity of the target company
E)   WACC of the target companyF) A) and E)
G) A) and B)

Question 19

The maximum purchase price acceptable to the acquiring firm in a merger:

Accepted Answer

A)   cannot exceed the pre-merger value of the target firm.
B)   is always equal to the pre-merger value of the target firm.
C)   is always less than the pre-merger value of the target firm.
D)   a and c
E)   None of the aboveF) C) and D)
G) B) and E)

Question 20

Management's propensity to overestimate the value of the target company in a merger can lead to:

Accepted Answer

A)   financial disaster for the acquiring company.
B)   a financial windfall for the stockholders of the target company.
C)   an irrational transfer of wealth from the shareholders of the acquirer to those of the target.
D)   All of the aboveE) All of the above
F) A) and B)

Exam 18: Corporate Restructuring

Management's propensity to overestimate the value of the target company in a merger can lead to:

Correct Answer
verified

Correct Answer
verified
Current cash flow = $50M + $15...
View Answer

Although the courts usually permit bankrupt firms to continue in business, they protect creditors' interests by requiring:

Correct Answer
verified

A combination of companies that compete directly is a:

Correct Answer
verified

A leveraged buyout is a transaction in which a publicly traded company is converted into a privately held firm.

Correct Answer
verified

According to the IRS, tax savings cannot be the only reason for a merger.

Correct Answer
verified

In strategic mergers, success is based on making money through the operation of financial markets rather than through the operation of the underlying business.

Correct Answer
verified

In a merger, the minimum total price acceptable to the target's shareholders is:

Correct Answer
verified

The maximum purchase price acceptable to the acquiring firm in a merger:

Correct Answer
verified

A junk bond is:

Correct Answer
verified

Correct Answer
verified
50 + 50g = 84 -700g
750g = 3...
View Answer

In many financial mergers, private equity groups are taking advantage of firms whose market value is less than their intrinsic value.

Correct Answer
verified

Anti-trust legislation:

Correct Answer
verified

The most likely impetus for a merger between two companies in the same business but in different regions is ____.

Correct Answer
verified

A firm acquires a competitor in a vertical merger.

Correct Answer
verified

The first and last priorities for receiving funds in a bankruptcy are:

Correct Answer
verified

Internal growth is perhaps the most persuasive reason for mergers.

Correct Answer
verified

In discounting the forecasted future cash flows of a target company for valuation purposes, which discount rate should be used?

Correct Answer
verified

In a friendly merger, the target's management and board of directors approve of the deal and cooperate with the acquiring company.

Correct Answer
verified

Economies of scale in production and distribution would generally be highest in:

Correct Answer
verified

Exam 18: Corporate Restructuring

Management's propensity to overestimate the value of the target company in a merger can lead to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedCurrent cash flow = $50M + $15...View AnswerShow Answer

Although the courts usually permit bankrupt firms to continue in business, they protect creditors' interests by requiring:

Correct AnswerverifiedShow Answer

A combination of companies that compete directly is a:

Correct AnswerverifiedShow Answer

A leveraged buyout is a transaction in which a publicly traded company is converted into a privately held firm.

Correct AnswerverifiedShow Answer

According to the IRS, tax savings cannot be the only reason for a merger.

Correct AnswerverifiedShow Answer

In strategic mergers, success is based on making money through the operation of financial markets rather than through the operation of the underlying business.

Correct AnswerverifiedShow Answer

In a merger, the minimum total price acceptable to the target's shareholders is:

Correct AnswerverifiedShow Answer

The maximum purchase price acceptable to the acquiring firm in a merger:

Correct AnswerverifiedShow Answer

A junk bond is:

Correct AnswerverifiedShow Answer

Correct Answerverified 50 + 50g = 84 -700g750g = 3...View AnswerShow Answer

In many financial mergers, private equity groups are taking advantage of firms whose market value is less than their intrinsic value.

Correct AnswerverifiedShow Answer

Anti-trust legislation:

Correct AnswerverifiedShow Answer

The most likely impetus for a merger between two companies in the same business but in different regions is ____.

Correct AnswerverifiedShow Answer

A firm acquires a competitor in a vertical merger.

Correct AnswerverifiedShow Answer

The first and last priorities for receiving funds in a bankruptcy are:

Correct AnswerverifiedShow Answer

Internal growth is perhaps the most persuasive reason for mergers.

Correct AnswerverifiedShow Answer

In discounting the forecasted future cash flows of a target company for valuation purposes, which discount rate should be used?

Correct AnswerverifiedShow Answer

In a friendly merger, the target's management and board of directors approve of the deal and cooperate with the acquiring company.

Correct AnswerverifiedShow Answer

Economies of scale in production and distribution would generally be highest in:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Current cash flow = $50M + $15...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
50 + 50g = 84 -700g
750g = 3...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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