corporation finance test bank chapter 26.docx

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