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Exam 26: Mergers and Acquisitions

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Question 31

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The Daily News published an ad today wherein it announced its desire to purchase shares of a competing newspaper,the Oil Town Gossip.Which one of the following terms is best described by this announcement?

A) merger request
B) consolidation
C) tender offer
D) spinoff
E) divestiture

F) A) and D)
G) A) and C)

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Question 32

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The Cat Box acquired The Dog House.As part of this transaction,both firms ceased to exist in their prior form and combined to create an all-new entity,Animal World.Which one of the following terms best describes this transaction?

A) divestiture
B) consolidation
C) tender offer
D) spinoff
E) conglomeration

F) B) and E)
G) B) and C)

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Question 33

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The Sweet Shoppe and Candy Land are all-equity firms.The Sweet Shoppe has 500 shares outstanding at a market price of $96 a share.Candy Land has 2,700 shares outstanding at a price of $24 a share.The Sweet Shoppe is acquiring Candy Land for $62,000 in cash.The incremental value of the acquisition is $3,600.What is the net present value of acquiring Candy Land to The Sweet Shoppe?

When evaluating an acquisition you should:

Sleep Tight is acquiring Restful Inns for $52,500 in cash.Sleep Tight has 3,000 shares of stock outstanding at a market price of $38 a share.Restful Inns has 2,100 shares of stock outstanding at a market price of $24 a share.Neither firm has any debt.The incremental value of the acquisition is $1,700.What is the price per share of Sleep Tight after the acquisition?

Silver Enterprises has acquired All Gold Mining in a merger transaction.The following balance sheets represent the premerger book values for both firms. $\begin{array} { l r l r } & { \text { Silver Enterprises } } & \\\text { Current assets } & \$ 1,500 & \text { Current liabilities } & \$ 1,000 \\\text { Other assets } & 400 & \text { Long-term debt } & 500 \\\text { Net fixed assets } & \frac { 2,300 } { \$ 4,200 } & \text { Equity } & \mathbf { 2 , 7 0 0 } \\\text { Total } & \underline { \$ 4,200 } \\& { \text { All Gold Mining } } \\\text { Current assets } & \$ 600 & \text { Current liabilities } & \$ 500 \\\text { Other assets } & \mathbf { 2 1 0 } & \text { Long-term debt } & 0 \\\text { Net fixed assets } & \underline { 1,600 } & \text { Equity } & \underline { 1,910 } \\\text { Total } & \underline { \$ 2,410 } & \text { Total } & \underline { \$ 2,410 }\end{array}$ Assume the merger is treated as a purchase for accounting purposes.The market value of All Gold Mining's fixed assets is $3,800; the market values for current and other assets are the same as the book values.Assume that Silver Enterprises issues $5,000 in new long-term debt to finance the acquisition.The post-merger balance sheet will reflect goodwill of _____ and total equity of _____.

Which of the following represent potential tax benefits that can directly result from an acquisition? I.an increase in depreciation expense II.an increase in surplus funds III.the use of net operating losses IV.an increased use of leverage

Which of the following represent potential gains from an acquisition? I.increased use of debt II.lower costs per unit produced III.strategic beachhead IV.diseconomies of scale

Which of the following have been suggested as reasons why the stockholders in acquiring firms may not benefit to any significant degree from an acquisition? I.the price paid for the target firm might equal the target firm's total value II.management may have priorities other than the interest of the stockholders III.the takeover market may not be competitive IV.anticipated merger gains may not be fully achieved

Hanover Tires is being acquired by Better Tires for $89,000 worth of Better Tires stock.Hanover Tires has 2,500 shares of stock outstanding at a price of $36 a share.Better Tires has 6,000 shares outstanding with a market value of $23 a share.The incremental value of the acquisition is $4,200.How many new shares of stock will be issued to complete this acquisition?

Dixie and ten of her wealthy friends formed a group and borrowed the funds necessary to acquire 100 percent of the outstanding shares of Southern Fried Chicken.This transaction is known as a:

Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T) .Assume that neither firm has any debt outstanding. $\begin{array} { l r r } & \underline { \text { Firm B } } & \underline { \text { Firm T } } \\\text { Shares outstanding } & 1,700 & 1,200 \\\text { Price per share } & \$ 32 & \$ 26\end{array}$ Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $2,500.What is the NPV of the merger assuming that Firm T is willing to be acquired for $28 per share in cash?

An auto maker recently acquired a windshield manufacturer.Which type of an acquisition was this?

A proposed acquisition may create synergy by: I.increasing the market power of the combined firm. II.improving the distribution network of the acquiring firm. III.providing the combined firm with a strategic advantage. IV.reducing the utilization of the acquiring firm's assets.

Which of the following statements correctly apply to a merger? I.The titles to individual assets of the acquired firm must be transferred into the acquiring firm's name. II.The merged firm will retain the use of the acquiring company's name. III.The acquiring firm does not have to seek approval for the merger from its shareholders. IV.The shareholders of the acquired company must approve the merger.

Which one of the following generally has a flip-in provision that significantly increases the cost to a shareholder who is attempting to gain control over a firm?

Identify the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Assume the following balance sheets are stated at book value. What will be the value of the equity account on the postmerger balance sheet assuming that Meat Co.purchases Loaf,Inc.and the pooling of interests method of accounting is used.

Alliance Chemicals recently acquired Swenson Industries in a transaction that produced a NPV of $1.3 million.This NPV is referred to as:

The shareholders of Jolie Company have voted in favor of a buyout offer from Pitt Corporation.Information about each firm is given here: $\begin{array} { l r r } & \underline { \text { Jolie } } & \underline { \text { Pitt } } \\\text { Price-earnings ratio } & 6 & 12 \\\text { Shares outstanding } & 62,000 & 124,000 \\\text { Earnings } & \$ 210,000 & \$ 630,000\end{array}$ Jolie's shareholders will receive one share of Pitt stock for every three shares they hold in Jolie.Assume the NPV of the acquisition is zero.What will the post-merger PE ratio be for Pitt?