corporation finance test bank chapter 26.docx
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corporation finance test bank chapter 26.docx
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corporationfinancetestbankchapter26
Chapter26
MergersandAcquisitions
MultipleChoiceQuestions
1. Lastmonth,KeyserDesignacquiredalloftheassetsandliabilitiesofTenorMachineWorks.ThecombinedfirmisknownasKeyserDesign.TenorMachineWorksnolongerexistsasaseparateentity.Thisacquisitionisbestdescribedasa:
A. merger.
B. consolidation.
C. tenderoffer.
D. spinoff.
E. divestiture.
2. TheCatBoxacquiredTheDogHouse.Aspartofthistransaction,bothfirmsceasedtoexistintheirpriorformandcombinedtocreateanall-newentity,AnimalWorld.Whichoneofthefollowingtermsbestdescribesthistransaction?
A. divestiture
B. consolidation
C. tenderoffer
D. spinoff
E. conglomeration
3. TheDailyNewspublishedanadtodaywhereinitannounceditsdesiretopurchasesharesofacompetingnewspaper,theOilTownGossip.Whichoneofthefollowingtermsisbestdescribedbythisannouncement?
A. mergerrequest
B. consolidation
C. tenderoffer
D. spinoff
E. divestiture
4. SomeFreightLineExpressshareholdersareverydissatisfiedwiththeperformanceofthefirm'scurrentmanagementteam.Theseshareholderswanttogaincontroloftheboardofdirectorssotheycanhavethepowertooustcurrentmanagement.Asameansofgainingcontrol,theseshareholdershaveselectcandidatesforalloftheopenpositionsonthefirm'sboardofdirectors.Sincetheyhaveinsufficientvotestoguaranteetheelectionoftheseindividuals,theyarecontactingothershareholdersandaskingthemtovotewiththemonthisimportantmatter.Ofcourse,thecurrentmanagementteamisencouragingshareholderstovotefortheircandidatesfortheboard.Whichoneofthefollowingtermsisbestillustratedbythissituation?
A. tenderoffer
B. proxycontest
C. going-privatetransaction
D. leveragedbuyout
E. consolidation
5. Agroupofindividualinvestorsisintheprocessofacquiringallofthepublicly-tradedsharesofOMOutfitters.Oncethesharesareacquired,theywillnolongerbepubliclytraded.Whichofthefollowingtermsappliestothisprocess?
A. tenderoffer
B. proxycontest
C. going-privatetransaction
D. leveragedbuyout
E. consolidation
6. Thecurrentpresidentandvice-presidentsofMountainTopConsultinghavedecidedtoformaprivateinvestmentgroupwiththesolepurposeofpurchasingMountainTopConsulting.Theseindividualshavefoundalenderwhowilllendthem85percentofthepurchasecostiftheypledgetheirpersonalassetsascollateralfortheloan.Thecurrentofficersagreetothisarrangement,borrowthefunds,andpurchaseMountainTopConsulting.Thepurchaseofthisfirmisreferredtoasa:
A. conglomeration.
B. proxycontest.
C. merger.
D. leveragedbuyout.
E. consolidation.
7. JohnsonManufacturersandPeabodyEnterprisesarebothmanufacturersofplasticproducts,suchasplasticplatesandsilverware.Thesetwofirmshavedecidedtoworktogethertofindamoreefficientwaytorecyclerejectedproductssothatanyrejectedmaterialcanbereused.Thus,eachcompanyisgoingtoassigntwoofitsengineerstothisprojectandhaveagreedtoshareanyandallcostsincurredinthisprocess.Thisprojectisanexampleofa:
A. consolidation.
B. mergedalliance.
C. jointventure.
D. takeoverproject.
E. strategicalliance.
8. DietSodaandHighCaffeinearetwofirmsthatcompeteinthesoftdrinkmarket.Thesetwocompetitorshavedecidedtoinvest$10milliontoformanewcompany,FruitTea,whichwillmanufactureflavoredteas.Thisnewfirmisdefinedasa:
A. consolidation.
B. strategicalliance.
C. jointventure.
D. mergedalliance.
E. takeoverproject.
9. AllianceChemicalsrecentlyacquiredSwensonIndustriesinatransactionthatproducedaNPVof$1.3million.ThisNPVisreferredtoas:
A. theagencyeffect.
B. theconsolidatingvalue.
C. diversification.
D. theconsolidationeffect.
E. synergy.
10. RogerisamajorshareholderinRBIndustrialSupply.Currently,Rogerisquiteunhappywiththedirectionthefirmisheadedandisrumoredtobeconsideringanattempttotakeoverthefirmbysolicitingthevotesofothershareholders.Toheadoffthispotentialattempt,theboardofRBIndustrialSupplyhasdecidedtoofferRoger$35ashareforallthesharesheownsinthefirm.Thecurrentmarketvaluepershareis$32.ThisoffertopurchaseRoger'ssharesiscommonlyreferredtoas:
A. agoldenparachute.
B. standstillpayments.
C. greenmail.
D. apoisonpill.
E. awhiteknight.
11. Whichoneofthefollowinggenerallyhasaflip-inprovisionthatsignificantlyincreasesthecosttoashareholderwhoisattemptingtogaincontroloverafirm?
A. goldenparachute
B. standstillagreement
C. greenmail
D. poisonpill
E. whiteknight
12. MelvinwasattemptingtogaincontrolofWesternWoodProductsuntilherealizedthattheexistingshareholdersinthefirmhadtherighttopurchaseadditionalsharesatabelow-marketpricegivenhishostiletakeoverattempt.Thus,Melvindecidedtoforegoinvestinginthisfirm.WhattermappliestothetacticusedbyWesternWoodProductstostaveoffthistakeoverattempt?
A. pac-mandefense
B. sharkrepellentplan
C. goldenparachuteprovision
D. greenmailprovision
E. sharerightsplan
13. NiegerMillsengagesinfarming,truckingoffarmproducts,andthemillingandretailingoffarmgrains.ThefirmhasdecidedtosellitsfarmingoperationstoJasperFarms.Thissaleisreferredtoasa(n):
A. liquidation.
B. divestiture.
C. merger.
D. allocation.
E. restructuring.
14. PrincetonEnterprisesisadiversifiedcompany.Inadditiontoitsprimarybusinessoperations,thefirmisalsothesoleshareholderofawhollyownedsubsidiary.Aspartofitsrestructuringplan,PrincetonhasdecidedtoimplementanIPOofferingforsharesinthesubsidiary.Thisofferingisequivalenttoa25percentownershipstakeinthesubsidiary.Whatisthedistributionofthesesharescalled?
A. split-up
B. equitycarve-out
C. countertenderoffer
D. whiteknighttransaction
E. lockuptransaction
15. FamilyTravelPlansisthesoleshareholderinitssubsidiary,Traveler'sInsuranceCo.FamilyTravelPlanshasdecidedtodivestitselfofitsinsuranceoperationsanddoessobydistributingthesharesinthesubsidiarytotheshareholdersofFamilyTravelPlans.Thisdistributionofsharesiscalleda(n):
A. lockuptransaction.
B. bearhug.
C. equitycarve-out.
D. spin-off.
E. split-up.
16. BlascoDistributorshasbecomealargeconglomerate.Itsboardofdirectorsrecentlyconcludedthatthefirmhasbecomesolargethatithaslostitsefficiency.Theboardfurtherconcludedthatthefirmcouldbebothmoreefficientandmoreprofitableifitweredividedintothreedistinctandseparatefirms.Theboardpresentedthissuggestedtothefirm'sshareholdersandthoseshareholdersvotedandagreedtodividethefirm.Dividingthisfirmintoseparateentitiesisreferredtoasa(n):
A. lockuptransaction.
B. divestiture.
C. equitycarve-out.
D. spin-off.
E. split-up.
17. Whichoneofthefollowingstatementscorrectlyappliestoalegallydefinedmerger?
A. Theacquiringfirmretainsitsidentityandabsorbsonlytheassetsoftheacquiredfirm.
B. Theacquiredfirmiscompletelyabsorbedandceasestoexistasaseparatelegalentity.
C. Anewfirmiscreatedwhichincludesalltheassetsandliabilitiesoftheacquiringfirmplustheassetsonlyoftheacquiredfirm.
D. Anewfirmiscreatedfromtheassetsandliabilitiesofboththeacquiringandacquiredfirms.
E. Amergerreclassifiestheacquiredfirmintoanewentitywhichbecomesasubsidiaryoftheacquiringfirm.
18. Whichofthefollowingstatementscorrectlyapplytoamerger?
I.Thetitlestoindividualassetsoftheacquiredfirmmustbetransferredintotheacquiringfirm'sname.
II.Themergedfirmwillretaintheuseoftheacquiringcompany'sname.
III.Theacquiringfirmdoesnothavetoseekapprovalforthemergerfromitsshareholders.
IV.Theshareholdersoftheacquiredcompanymustapprovethemerger.
A. IandIIIonly
B. IIandIVonly
C. I,II,andIIIonly
D. I,II,andIVonly
E. I,II,III,andIV
19. Inamergerthe:
A. legalstatusofboththeacquiringfirmandthetargetfirmisterminated.
B. acquiringfirmretainsitspre-mergerlegalstatus.
C. acquiringfirmacquirestheassets,butnottheliabilities,ofthetargetfirm.
D. shareholdersofthetargetfirmhavelittle,ifany,sayastowhetherornotthemergeroccurs.
E. targetfirmcontinuestoexistbutwillbeawhollyownedsubsidiaryoftheacquiringfirm.
20. Whichofthefollowingincreasethecostsassociatedwithamerger?
A. changingthetitletoallthecombinedfirm'sassets
B. disbandingtheoperationsofthetargetfirm
C. hiringanunderwritertodistributetheIPOshares
D. issuecostsassociatedwithwarrantsthatmustbeofferedtotheshareholdersoftheacquiringfirm
E. seekingapprovaloftheshareholdersofboththeacquiringandtheacquiredfirm
21. DownRiverMarketshasdecidedtoacquireacontrollinginterestinBlueJaysbypurchasingsharesofstockinthepublicmarkets.Whichofthefollowingstatementscorrectlyapplytothisacquisition?
I.Thepurchaseofpublicly-tradedsharesmaybemoreexpensivethananoutrightmergerwithBlueJayswouldhavebeen.
II.DownRiverMarketscanavoiddealingwiththeboardofdirectorsofBlueJaysbypurchasingsharesinthismanner.
III.IfDownRiverMarketsissuccessfulinacquiringatleast80percentoftheoutstandingsharesofBlueJays,theremainingshareholdersinBlueJayswillbeforcedtoalsoselltheirsharestoDownRiverMarkets.
IV.WhetherornotDownRiverMarketsgainscontrol
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