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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.


A) I and III only
B) II and III only
C) I and IV only
D) I,II,and III only
E) I,II,III,and IV

F) D) and E)
G) A) and E)

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George's Equipment is planning on merging with Nelson Machinery.George's will pay Nelson's shareholders the current value of their stock in shares of George's Equipment.George's currently has 4,600 shares of stock outstanding at a market price of $31 a share.Nelson's has 1,600 shares outstanding at a price of $38 a share.What is the value per share of the merged firm?


A) $30.77
B) $31.00
C) $31.29
D) $31.74
E) $32.06

F) A) and B)
G) All of the above

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Consider the following premerger information about Firm A and Firm B: Consider the following premerger information about Firm A and Firm B: Assume that Firm A acquires Firm B via an exchange of stock at a price of $25 for each share of B's stock.Both A and B have no debt outstanding.What will the earnings per share of Firm A be after the merger? A) $1.60 B) $1.86 C) $1.95 D) $2.02 E) $2.10 Assume that Firm A acquires Firm B via an exchange of stock at a price of $25 for each share of B's stock.Both A and B have no debt outstanding.What will the earnings per share of Firm A be after the merger?


A) $1.60
B) $1.86
C) $1.95
D) $2.02
E) $2.10

F) C) and D)
G) All of the above

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Silver Enterprises has acquired All Gold Mining in a merger transaction.The following balance sheets represent the premerger book values for both firms. Silver Enterprises has acquired All Gold Mining in a merger transaction.The following balance sheets represent the premerger book values for both firms. Assume the merger is treated as a pooling of interests for accounting purposes.The total assets are _____ and the total equity is _____ on the post-merger balance sheet. A) $24,500;$10,500 B) $24,500;$18,200 C) $26,300;$10,500 D) $26,300;$16,600 E) $27,500;$19,400 Assume the merger is treated as a pooling of interests for accounting purposes.The total assets are _____ and the total equity is _____ on the post-merger balance sheet.


A) $24,500;$10,500
B) $24,500;$18,200
C) $26,300;$10,500
D) $26,300;$16,600
E) $27,500;$19,400

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

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If Paul's Hardware were to acquire Suburban Hardware,the acquisition would be classified as a _____ acquisition.


A) horizontal
B) longitudinal
C) conglomerate
D) vertical
E) integrated

F) B) and C)
G) C) and D)

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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


A) II and III only
B) I and IV only
C) I,II,and III only
D) I,III,and IV only
E) I,II,III,and IV

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

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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) C) and E)
G) B) and D)

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Blasco Distributors has become a large conglomerate.Its board of directors recently concluded that the firm has become so large that it has lost its efficiency.The board further concluded that the firm could be both more efficient and more profitable if it were divided into three distinct and separate firms.The board presented this suggested to the firm's shareholders and those shareholders voted and agreed to divide the firm.Dividing this firm into separate entities is referred to as a(n) :


A) lockup transaction.
B) divestiture.
C) equity carve-out.
D) spin-off.
E) split-up.

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

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In a tax-free acquisition,the shareholders of the target firm:


A) receive income which is considered to be tax-exempt.
B) gift their shares to a tax-exempt organization and therefore have no taxable gain.
C) are viewed as having exchanged shares on a dollar-for-dollar basis.
D) sell their shares to a qualifying entity thereby avoiding both income and capital gains taxes.
E) sell their shares at cost thereby avoiding the capital gains tax.

F) A) and B)
G) A) and E)

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For financial statement purposes,goodwill created by an acquisition:


A) must be amortized on a straight-line basis over 10 years.
B) must be reviewed each year and amortized to the extent that it has lost value.
C) is expensed evenly over a 20-year period.
D) never affects the profits of the acquiring firm.
E) is recorded in an amount equal to the fair market value of the assets of the target firm.

F) None of the above
G) All of the above

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Melvin was attempting to gain control of Western Wood Products until he realized that the existing shareholders in the firm had the right to purchase additional shares at a below-market price given his hostile takeover attempt.Thus,Melvin decided to forego investing in this firm.What term applies to the tactic used by Western Wood Products to stave off this takeover attempt?


A) pac-man defense
B) shark repellent plan
C) golden parachute provision
D) greenmail provision
E) share rights plan

F) All of the above
G) None of the above

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Defensive merger tactics are designed to thwart unwanted takeovers and mergers.Do such activities work to the advantage of shareholders all of the time? Are these types of activities ethical? Who do you think benefits the most from these activities?

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Good students will recognize that defens...

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The Cycle Stop has 1,600 shares outstanding at a market price per share of $8.48.Kate's Wheels has 1,750 shares outstanding at a market price of $13 a share.Neither firm has any debt.Kate's Wheels is acquiring The Cycle Stop for $15,000 in cash.What is the merger premium per share?


A) $0.27
B) $0.46
C) $0.90
D) $1.43
E) $2.52

F) D) and E)
G) A) and D)

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The primary purpose of a flip-in provision is to:


A) increase the number of shares outstanding while also increasing the value per share.
B) dilute a corporate raider's ownership position.
C) reduce the market value of each share of stock.
D) give the existing corporate directors the sole right to remove a poison pill.
E) provide additional compensation to any senior manager who loses his or her job as a result of a corporate takeover.

F) B) and D)
G) All of the above

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Which of the following is a form of a takeover? I.tender offer II.merger III.proxy contest IV.going private transaction


A) I and II only
B) III and IV only
C) II,III,and IV only
D) I,II,and III only
E) I,II,III,and IV

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

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


A) the agency effect.
B) the consolidating value.
C) diversification.
D) the consolidation effect.
E) synergy.

F) None of the above
G) B) and D)

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Moore Industries has agreed to be acquired by Scott Enterprises for $22,000 worth of Scott Enterprises stock.Scott Enterprises currently has 7,500 shares of stock outstanding at a price of $28 a share.Moore Industries has 1,800 shares outstanding at a price of $12 a share.The incremental value of the acquisition is $1,100.What is the value per share of Scott Enterprises stock after the acquisition?


A) $27.52
B) $27.96
C) $28.08
D) $28.47
E) $31.03

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

Correct Answer

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Which of the following are required for an acquisition to be considered tax-free? I.continuity of equity interest II.a business purpose,other than avoiding taxes,for the acquisition III.payment in the form of equity shares for the acquired firm IV.cash payment for the equity of the acquired firm


A) I and II only
B) II and III only
C) II and IV only
D) I,II,and III only
E) I,II,and IV only

F) None of the above
G) B) and D)

Correct Answer

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Dressler,Inc. ,is planning on merging with Weston Foods.Dressler will pay Weston's shareholders the current value of its stock in shares of Dressler stock.Dressler's currently has 6,200 shares of stock outstanding at a market price of $30 a share.Weston's has 2,200 shares outstanding at a price of $25 a share.How many shares of stock will be outstanding in the merged firm?


A) 6,840 shares
B) 7,061 shares
C) 7,200 shares
D) 8,033 shares
E) 8,609 shares

F) B) and C)
G) C) and D)

Correct Answer

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Which one of the following best defines synergy given the following? VA = Value of firm A VB = Value of firm B VAB = Value of merged firm AB


A) (VA + VB) - VAB
B) VAB - (VA + VB)
C) greater of 0 or (VA + VB) - VAB
D) greater of 0 or VAB - (VA + VB)
E) greater of 0 or VAB

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

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