Chapter 4: Leveraged Buyouts

1-
What is the main source of financing in a leveraged buyout? A,

Debt
Equity
Assets
Cash

2-Which of the following characteristics would represent an attractive LBO candidate?

C, Irregular cash flow and substantial assets

High capex requirements and small asset base
Predictable cash flow and substantial assets
Substantial assets and insubstantial cash flow

3-Investment banks typically compete to provide a financing in an LBO, the legally binding letters are called?

D, Commitment papers
Revolver
Financing papers
Both A and C

4-What is a private equity firm considered in an LBO? A,

A financial sponsor
A strategic investor
A passive investor
A limited partner

5-What is another name for a limited partnership structured as a fixed-life investment vehicle?

B, General partnership
Blind pool
Passive investment
SPAC
6-
All of the following are ways to improve operational efficiencies EXCEPT:

C, Lower corporate overhead

Streamline operations
Increase marketing efforts
Reduce head count

7-What can potentially be reduced or eliminated in the event that economic or operating performance declines?
A,

Growth capex
Assets
Maintenance capex
PP&E
8-
What is the primary metric used by sponsors to gauge the attractiveness of a potential LBO as well as the
performance of their existing investments?
DCF
B, IRR
Precedent transactions analysis
Comparable companies analysis

9-Calculate the internal rate of return for a $300.0m cash outflow at the end of year 0 and a $716.0m cash
inflow at the end of year 5.

D, 16%
20%
18.5%
19%

10-If a target was purchased for $1,500.0m with an equity contribution of $500.0m, what is the enterprise value
of the target if it used $500.0m of cash flow to repay debt?

C, $1,000.0m
$500.0m
$1,500.0m
$2,000.0m
11-
A target was purchased for $1,500.0m with an equity contribution of $500.0m, and by year 5 $500.0m of cash
flow was used to repay debt. Assuming the sponsor sells the target for the enterprise value, what is the value of
the sponsor’s equity?

B, $1,500.0m
$1,000.0m
$500.0m
$2,000.0m

12-A target was purchased for $1,500.0m with an equity contribution of $500.0m. By year 5 no debt has been
repaid and enterprise value has grown by $500.0m. Assuming the sponsor sells the target for its enterprise
value, what is the sponsor’s cash return? A,

2x
3x
1x
5x

13-Which of the following scenarios is likely to generate the highest return?

An LBO financed with 50% debt

An LBO financed with 30% equity
C, An LBO financed with 80% debt
An LBO financed with 50% equity

14-Which of the following LBO financing scenarios will lead to the highest interest expense?

D, 80% equity
20% debt
60% debt
20% equity

15-Which of the following correctly ranks the capital structure hierarchy?

B, High yield bonds, mezzanine debt, equity contribution, bank debt

Equity contribution, mezzanine debt, high yield bonds, bank debt
Equity contribution, high yield bonds, mezzanine debt, bank debt
Bank debt, mezzanine debt, high yield bonds, equity contribution

16-Which of the following forms of financing tends to be the least flexible? A,

Bank debt
Mezzanine debt
Equity contribution
High yield bonds

17-An ABL facility is generally secured by a first priority lien on which of the following assets?

C, PP&E
Deferred tax asset
Inventory
18-Goodwill
A feature in the high yield market that allows the issuer to pay interest in the form of additional notes is called
a:

C, Bridge loan
First lien
PIK
Term B loan

19-What kind of loan is needed if the “take-out” securities deteriorate between the signing and the closing of an
LBO? A,
Bridge loan
Second lien term loan
PIK
Mezzanine debt
20-
What can protect investors from having debt with an attractive yield refinanced before maturity?
D, Floating interest rate
Fixed interest rate
PIK
Call premium
21-
All of the following are primary classifications of covenants EXCEPT:
C, Affirmative
Negative
Maintenance
Financial
22-
What is the classification of a covenant requiring a borrower to maintain assets, collateral, or other securities?
A,
Affirmative
Negative
Maintenance
Financial
23-
What is the classification of a covenant that limits the amount of debt the borrower can have outstanding?
B, Affirmative
Negative
Maintenance
Financial
24-
What is the classification of a covenant that requires to buyer to maintain a minimum EBITDA?
D, Affirmative
Negative
Maintenance
Financial
25-
What is the annual interest rate paid on a debt obligation’s principal amount outstanding called? ?
B, Covenant
Coupon Call
premium PIK
26-
When performing a returns analysis in an LBO, which method does not include the time value of money?

C, IRR
DCF
Cash return analysis
Perpetuity growth method
27-
If an LBO target does not repay any debt during the investment horizon, how can the sponsor still realize a
return? A.

If the target reinvests its cash into the business, the sponsor can realize a return by selling the target at a higher
enterprise value
The sponsor cannot realize a return, as the enterprise value did not increase
The sponsor cannot realize a return, as the value of the sponsor’s equity could not increase
It depends on the sponsor’s internal rate of return
28-
Which exit strategy provides the sponsor with the ability to retain 100% of its existing ownership position in the
target?

C, Sale to a strategic buyer

IPO
Dividend recapitalization

Chapter 5: LBO Analysis

1-When preparing a pre-LBO model, the historical income statement is completed until what point? D, EBIT 2-In an
LBO model, which scenario is considered the most conservative? D, Downside case 3-In a pre-LBO model, what is
the new line item “financing fees” under? B. Long-term assets 4-In a pre-LBO model, net income on the first line of
the cash flow statement is initially: A, Inflated 5-Under operating activities on a cash flow statement, amortization of
financing fees is linked from the: C, Income statement 6-The ending cash balance on the cash flow statement is linked
to the: B, Cash and cash equivalents 7-Calculate implied enterprise value given the following details. Details:- Offer
price per share: $20.0 -Fully diluted shares outstanding: 100 -Total debt: $200.0 -Cash: $100.0 C, $2,100 8-Which of
the following are sources of funds? I. Term loan -II. Repayment of term loan -III. Purchase of equity -IV. Cash on hand
B, I and II 9-Calculate the total goodwill for a pro forma balance sheet given the following details. Details: -Equity
purchase price: $2,000 -Book value: $1,700 -Existing goodwill: $100 D, $400 10-In an LBO, financing fees are a(n):
C, Deferred expense 11-What is needed in order to complete the pro forma income statement from EBIT to net
income? B, Debt schedule 12-In a post-LBO model, where are the debt repayment amounts linked to? B, Financing
activities on the cash flow statement 13-When building a debt schedule, what are interest rates typically based on for
floating-rate debt instruments? D, LIBOR 14-Calculate the interest rate for a revolving credit facility in 2014 given the
following information. Details: -Pricing spread: 350 bps. -Debt schedule -Pro forma 2008, 3%. 2009, 3%. 2010,
3.15%. 2011, 3.3%. 2012, 3.6%. 2013, 4%. 2014, 4.35%. 2015, 4.8%. 2016, 4.85%. 2017, 5.1%. 2018, 5.25%. A,
7.85% 15-Given the following information, calculate the cash available for debt repayment when building a post-LBO
model. Details: -Cash flow from investing activities: $30. -EBIT: $65 -Cash flow from operating activities: $120.0
-D&A: $35 C, $90.0 16-Given the following information, calculate the cash available for optional debt repayment.
Details: -Cash flow from investing activities: $50.0 -Cash flow from operating activities: $125.0 -Total mandatory debt
repayment: $30.0 -Cash from balance sheet: $20.0 A, $65.0 17-In which of these scenarios is a revolver draw
necessary. B, When cash available for optional debt repayment is negative 18-Given the following information,
what is the total amount that has been drawn from the revolver? Details: -Revolver: $100.0m -Term: 3 years -Annual
commitment fee: 30 bps -Cash available for optional debt repayment: -Year 1: $40.0m -Year 2: $35.0m -Year 3:
$32.0m D, Revolver remains undrawn 19-Which of the following do/does not require a set amortization schedule? A,
Revolving credit facility 20-Use the average interest expense approach to calculate the annual interest expense given
the following details. Details: -Beginning TLB: $300.0 -Ending TLB: $250.0 -Interest rate: 4% D, $9.0m 21-Calculate
net interest expense given the following information. Details: -Total interest expense: $25.0 -Interest income: $2.0m
-Non-cash deferred financing fees: $3.0m C, $26.0m 22-Given the following information, calculate the cash that will
flow to the balance sheet, assuming a 100% cash flow sweep. Details: -Free Cash Flow: $65.0m -TLB amortization:
$5.0m -Optional debt repayment: $70.0m D, $0.0 23-What is a key credit risk management concern for underwriters in
an LBO? D, All of the above 24-In a traditional LBO analysis, it is common practice to assume an exit multiple that is:
D, Both A and C 25-Which of the following provides an overview of the LBO analysis in a user-friendly format? B,
Transaction summary 26-When building a pre-LBO model, a banker builds the cash flow statement through what
point? C, Investing activities 27-What is needed to build the pro forma balance sheet once the pre-LBO model is
finished? C, Sources and uses of funds 28-Which part of the pro forma balance sheet is affected by the debt schedule?
A, Long-term liabilities

Stages of auction process

1. organization and preparation a. identifies seller objectives and determine appropriate sale process b. performs sell-
aside advisor due diligence and preliminary valuation analysis c. select buyer universe e. Prepare marketing material f.
prepares confidentiality agreement 2.First round a. contact prospective buyers b. Negotiate and execute confidentiality
agreement with interested parties c. Distribute CIM and initial bid procedures letter d. prepares management
presentation e. set up data room f. prepares stapled financing package g. receives initial bid and select buyers to
proceed to second round 3.second round a. conduct management presentation b. facilitates cite visit c. provides date
room access d. distributes final bid producers letter and draft definitive agreement e. receives final bid 4.Negotiation a.
evaluates final bid b. negotiates with proffered buyers c. select winning bidder d. render fairness opinion e. receives
board approval and execute definitive agreement 5.closing a. obtains necessary approvals b. financing and closing

An auction is a staged process whereby a target is marketed to multiple prospective buyers.

Broad Auction — maximizes the universe of prospective buyers approached. This may involve both strategic buyers
and financial sponsors. Designed to maximize competitive dynamics, thereby increasing the likelihood of finding the
best possible offer. Advantages -Heightens competitive dynamics -Maximize the probability of achieving maximum
sale price -Limits potential buyers; negotiating leverage -Helps to ensure that all likely bidders are approached
-Enhances board comfort that it has satisfied its fiduciary duty to maximize value. Disadvantages -Difficult to
preserve confidentiality -Highest business disruption risk -Some prospective buyers decline participation in broad
auction -Unsuccessful outcome can create perception of understandable asset -Industry competitors may participate
just to gain access to sensitive info.
Targeted Auction — focuses on a few clearly defined buyers that have been identified as having a strong strategic fit,
as well as the financial capacity, to purchase the target. This process is more conducive to maintaining confidentiality
and minimizing business disruption to the target. Advantages -Higher likelihood of preserving confidentiality -Reduce
business disruption -Reduce the potential of a failed auction by signaling a desire to select ‘partner’ -Maintains
perception of competitive dynamics -Serves as market check for board to meet its fiduciary duty disadvantages
-Potentially excludes non-obvious, but credible, buyers -Potential to leave money on the table -Lesser
degree of competition -May afford buyers more leverage in negotiations -Provide less market date in which board can
rely to satisfy its fiduciary duties
A negotiated sale is often initiated by the buyer, whether as the culmination of months or years of research, direct
discussion between buyer and seller executives, or as a move to preempt an auction. Advantages -highest degree of
confidentiality -generally, less disruptive to business than an auction -typically, fastest time to signing -minimize
‘taint’ perception if negotiation fails -may be the only basis on which buyers will participate in a sale process
disadvantages -limit seller negotiating leverage and competitive tension -potential to leave money on the table -still
requires significant management time to satisfy buyer due diligence -depending on buyer may require sharing of
sensitive information with competitors -proved less market data on which that target’s board of directors can rely to
satisfy itself that value has been maximize.

The two main marketing documents

The teaser. a brief one- or two-page synopsis of the target, including a company overview, investment highlights, and
summary financial information. The CIM is a detailed written description of the target (often 50+ pages). -The deal
team and the target’s management, spends significant time and resources drafting the CIM before it is deemed ready
for distribution to prospective buyers. -contains a detailed financial section presenting historical and projected financial
information with and explanations of both future performances.
A confidentiality agreement (CA) is a legally binding contract between the target and prospective buyers that
governs the sharing of confidential company information. -It is distributed to prospective buyers along with the teaser
but before the CIM, with the understanding that the receipt of more detailed information is conditioned on execution of
the CA. it includes 1.Use of information: All proprietary information is confidential used solely for decision making
purposes. 2.Term: time during which the confidentiality restrictions remain 3.Permitted disclosures buyer is
permitted to disclose the confidential information and prohibited from disclosing that the two parties are negotiating.
4.Return of confidential information destruction of all provided documents once the prospective buyer exits the
process 5.Non-solicitation/no hire — prevents prospective buyers from hiring target employees for a designated time
6.Standstill agreement — for public targets, precludes prospective buyers from making unsolicited offers or
purchases of the target’s shares 7.Restrictions on clubbing — prevents prospective buyers from collaborating with
each other or with outside financial sponsors/equity providers without the prior consent of the target
The initial bid procedures letter(IOI), sent after CIM, states the date and time by which interested parties must
submit their written, non-binding preliminary indications of interest (“first round bids”). It includes 1.Indicative
purchase price and form of consideration 2.Key assumption to arrive at stated purchase price 3.Info on financing
sources 4.Treatment of management and employees 5.key conditions to signing and closing 6.required approval
7.buyer contact information
Stapled Financing Package It is a “pre-packaged” financing structure in support of the target being sold. The staple
is targeted toward financial sponsor buyers and is typically only provided for private companies. To avoid a potential
conflict of interest, the M&A sell-side sets up a separate financing team distinct from the sell-side advisory team to run
the staple process
The final bid procedures letter outlines the exact date and guidelines for submitting a final, legally binding bid
package. (‘second round bid’) Requirements: -Exact dollar offer and form of consideration -Markup of definitive
agreement provided by the seller (LOI) -Evidence of committed financing (engagement letter) -Estimated time to sign
and close transaction -Attestation to completion of due diligence -Attestation that offer is binding and will remain
open for designated period -Board of director approval -Buyer contact information
The definitive agreement is a legally binding contract between a buyer and seller detailing the terms and conditions
of the sale transaction. In an auction, the first draft is prepared by the seller's legal counsel in collaboration with the
seller and its bankers. Then buyers will submit a revised definitive agreement hat it would be welling to sign
immediately if the bid is accepted.
Render Fairness Opinion(FO) A fairness opinion is a letter opining on the "fairness" of the consideration offered in
a transaction conducted by a third party to avoid biasness. (For public companies) selling divisions or subsidiaries,
may be requested by the board of directors depending on the size and scope of the business being sold. The board of
directors of (a private company) may also require a fairness opinion to be rendered in certain circumstances, especially
if the stock of the company is broadly held
MAC OR MAE (material adverse effect) is a highly-negotiated provision in the definitive agreement which may
permit buyer to avoid closing the transaction if a substantial adverse situation is discover after signing or detrimental
post signing event occurs that affects the target.
the shareholders have two different approval paths;
1-One-Step Merger In a "one-step" merger transaction for public companies, target shareholders vote on whether to
approve or reject the proposed transaction at a formal shareholder meeting pursuant to relevant state law. Before this
meeting, a proxy statement is distributed to shareholders describing the transaction, parties involved, and other
valuable information. Shareholder approval is typically determined by a majority vote, or 50.1% of the voting stock.
2. Two-Step Tender Process
Alternatively, a public acquisition can be structured as a "two-step" tender offer (purchase of shares for cash) on either
a negotiated or unsolicited basis, followed by a merger. -In the first step, the tender offer is made directly to the
target's public shareholders with the target's approval pursuant to a definitive agreement. Step two squeeze the
remaining 10% of the public shareholders.
A short-form merger
occurs in the case of a parent corporation who is merging with another company which it owns a large stake in It is
combining all its business operations - without a vote of the remaining shareholders of the subsidiary. The premise is
that the parent company owns such a large percentage of the subsidiary, that they have control of the subsidiary. The
remaining shareholders in the subsidiary are either holding their shares and fighting the sale just to hold out for more
money before selling

Chapter 6: Sell-Side M&A

1-
All of the following are deal considerations that sell-side advisors seek to achieve EXCEPT:

C, Value maximization
Speed of execution
Dilution 2-
Certainty of completion

In which of the following scenarios would a sell-side advisor consider running a broad auction?

D, Seller is flexible regarding timing

Seller is flexible regarding potential business disruption
Confidentiality is not a priority
All of the above
3-
Which type of auction should be used when speed of execution is a priority?

D, Broad auction
Targeted auction
Negotiated sale
Both B and C
4-
All of the following are disadvantages of which auction type? -

Potential to “leave money on the table” -

May afford buyers more leverage in negotiations -
Lesser degree of competition

B, Broad auction
Targeted auction
A. Negotiated sale
B. Silent auction
5-
All of the following are advantages of which auction type? -

Heightens competitive dynamics -

Limits potential buyers’ negotiating leverage -
Reduces potential business disruption

D, Broad auction
Targeted auction
Negotiated sale
None of the above
6-
Which of the following is performed during the first stage of the auction process? A,

Prepare confidentiality agreement

A. Contact prospective buyers
B. Receive board approval
C. Conduct management presentation
7-
Which of the following is performed during the final stage of the auction process?

C, Select winning bidder

Distribute final bid procedures letter and draft definitive agreement
Financing
Contact prospective buyers
8-
When evaluating strategic buyers, which of the following should be taken into consideration? A,

Financial capacity
A. Sector expertise
B. Investment strategy
C. Both A and B
9-
Which of the following criteria should be considered when evaluating a potential financial sponsor buyer?

D, Investment strategy
Fund size
Synergies
Both A and B

10-

Which of the following may be an advantage of a pursuing a strategic buyer in the M&A process?

D, Less financing risk

Operating leverage
Ability to realize synergies
Both A and C
11-
The teaser and CIM are both part of the:

B, Financial exhibits
Marketing materials
Confidentiality agreement
Contract
12-
In the M&A sales process, projected financial information can be found in which document?
C, 10-K
8-K
CIM
A. 424B3
13-
The confidentiality agreement includes provisions for all of the following EXCEPT: A,

Restrictions on financing
Standstill agreement
Permitted disclosure
Restrictions on clubbing
14-
What marks the formal launch of the bidding process?

C, Drafting the CIM

The confidentiality agreement
Contacting prospective buyers
Receiving initial bids
15-
Which of the following should be one of the first documents presented to a potential buyer?
A,
Confidentiality agreement
A. Teaser
B. Bid procedures letter
C. None of the above
16-
Key conditions to signing and closing are found on which of the following documents?

B, CIM
Bid procedure letter
A. Teaser
B. Confidentiality agreement
17-
A comprehensive set of information relevant to buyers can be found where? A,

Data room
CIM
Teaser
Confidentiality agreement
18-
Stapled financing is a(n):

C, Optimal financing structure

Customized financing structure
Pre-packaged financing structure
A. None of the above
19-
Which of the buyers can limit the scope of their due diligence?

C, Financial sponsor
Strategic buyer
Direct competitor
A. They are all equal
20-
Which of the following buyers could potentially have limited access to the data room?
A,
Direct competitor
A. Strategic buyer
B. Financial sponsor
C. All have equal access
21-
Which document has the purchase price details as well as the exact date and guidelines for an M&A process?

D, CIM
Bid procedures letter
Confidentiality agreement
Final bid procedures letter
22-
When is an issues list used in the M&A sale process?

C, After the potential buyer submits the revised definitive agreement

Before the seller send the revised definitive agreement
If the buyer does not want to submit a revised definitive agreement before it is informed it won the auction
A. At the beginning of the M&A sale
process 23-
In a(n) , the target survives the transaction and may choose to either continue operations or dissolve
after distributing the proceeds from the sale to its equity holders.
A,
Asset sale e
A. Stock sale
B. Fire sale
C. None of the above
24-
The target’s board of directors typically requires before making a recommendation on whether
to accept the offer and approve the execution of a definitive agreement.

B, Additional due diligence

A fairness opinioopinion n
A. A sum of the parts analysis
B. All of the above
25-
Which act requires that both parties in a large M&A transaction file notifications and report forms to the FTC
and the DOJ?

D, Jones Act
Glass-Steagall Act
Sarbanes-Oxley Act
Hart-Scott-Rodino Act
26-
Who decides to approve or reject a transaction in a one-step merger transaction for a public company?

C, CEO
Board of directors
Target shareholders
A. CFO
27-
In an M&A transaction, when is a tender offer made to the public shareholders?

C, Stock sale
One-step transaction
Two-step tender process
□ Asset sale
28-
What happens in a two-step tender process if the buyer fails to acquire enough of the target’s shares within 20
business days?

C, The merger is “busted”

The buyer gets additional time
A shareholders meeting must be completed
A. None of the above
29-
In which type of sale process does a seller have the least leverage?
A,
Negotiated sale e
A. Stock sale
B. Targeted auction
C. Broad auction
30-
A(n) is often initiated by the buyer.

B, Asset sale
Negotiated sale
A. Targeted auction
B. Broad auction
31-
All of the following are advantages of a negotiated sale EXCEPT:

D, High degree of confidentiality

Fastest timing
Less disruptive to the business
Potential to “leave money on the table”
32-
Where is a data room typically set up?

In the target company's headquarters

B, Online
A. In Switzerland
B. In M&A advisor’s
headquarters 33-
All of the following are valuation methodologies used by financial sponsors EXCEPT:

D, LBO model
Precedent transitions analysis
Comparable companies analysis
Accretion/(dilution) analysis

Chapter 7: Buy-Side M&A

1-
All of the following are reasons why M&A activity tends increase in strong economic
times EXCEPT:

D, High management confidence

Financing is readily available
Companies have excess cash
Companies focus on fortifying their balance sheets
2-
For day-to-day execution in an M&A process, appointed member(s) of the investment
banking advisory team communicate(s) with: A,

A point person
A. The CEO
B. Investor relations
C. The CFO
3-
In many instances, growth through acquisition is than building a new
business from scratch.

D, Cheaper
More time consuming
Faster
Both A and C
4-
When an acquirer buys a target in the same or a closely related business, synergies
tend to be:

B, Nonexistent
Greater
Lower
Unknown
5-
All of the following are considered cost synergies EXCEPT:

C, Head count reduction

Consolidation of facilities
Lower cost of capital
C. Economies of scale
6-
Revenue synergies tend to be more than cost synergies.

B, Safe
Speculative
A. Dependable
B. Conservative
7-
Which form of integration expands an acquirer’s geographic reach, product lines,
services, or distribution channels? A,

Horizontal integration
A. Geographic integration
B. Vertical integration
C. Transitional integration
8-
If a computer manufacturer purchases a semiconductor company, what form of
integration is this?

C, Horizontal integration
Vertical integration
Backward integration
Forward integration
9-
A company that brings together a broad range of businesses is considered: A,

Horizontally integrated
A conglomerate
An oligopoly
Vertically integrated
10-
Which of the following M&A scenarios tends to use an all-stock consideration?

C, Horizontal integration
Vertical integration
Merger of equals
Forward integration
11-
Which of the following is NOT a benefit of debt financing from the acquirer’s
prospective?

C, EPS accretion
Tax deductibility
Lack of covenants
A. Return on equity
12-
Calculate a target’s deferred tax liability given the following details.

Details: -
Tangible asset write-up: $100.0m -
Intangible asset write-up: $50.0m -
Total asset write-up: $150.0m -
Tax rate: 38% A,

$57.0m
A. $19.0m
B. $114.0m
C. $76.0m
13-
Given the following details, what is the difference in seller net proceeds between the
asset sale and the stock sale?

Details: -:
Corporate tax rate: 38% -
Capital gains rate: 20%

Stock Sale: -
Purchase price: $4,000.0 -m
Stock basis: $1,000.0m

Asset Sale: -
Purchase price: $4,000.0m -
Asset basis: $1,000.0m

B, $1,520.0m
$912.0m
A. $372.0m
B. $518.0m
14-
Which of the following generally provides the highest valuation on a football field
graphic display? A,
DCF
C. LBO
D. Comparable companies analysis
E. Precedent transactions analysis
15-
In a football field graphic for an M&A transaction, which of the following is a proxy
for what a financial buyer would be willing to pay for the company?

C, Precedent transactions analysis

DCF
LBO
B. Comparable companies analysis
16-
Which of the following in a buy-side M&A transaction employs analysis at different
prices to help analyze and frame valuation?

B, Football field
AVP
D. Contribution analysis
E. Consequences analysis
17-
Assuming this is a stock deal, calculate the goodwill created in the M&A transaction
given the following details.

Details: -
Shareholders’ equity: $5,000.0m -
Existing goodwill: $1,500.0m -
Equity purchase price: $6,600.0m -
Tangible and intangible asset write-ups: $1,200.0m -
Deferred tax liabilities: $800.0m

C, $2,000.0m
$1,500.0m
$2,700.0m
$3,200.0m
18-
When is a merger accretive?

D, Acquirer’s pro forma EPS is lower

Target’s P/E is higher than acquirer’s
Acquirer’s P/E is lower than target’s
Acquirer’s P/E is higher than target’s
19-
When is goodwill created?
C, Purchase price exceeds the net identifiable assets
Acquirer’s P/E is higher than target’s
Purchase price exceeds the net identifiable assets
C. Acquirer’s P/E is lower than target’s
20-
Which type of corporation is taxed separately from its shareholders?
S corporation
B, C corporation
A. LLC
B. All corporations
21-
Acquirer share price volatility after a deal is announced is a reason why a target’s
shareholders may find: A,

Equity financing less desirable

B. Debt financing less desirable
C. Equity financing more desirable
D. A mix of debt and equity financing is less desirable
22-
Which section of the Internal Revenue Code allows an acquirer to treat the purchase
of the target’s stock as an asset sale for tax purposes?

B, Section 225 election

Section 338
B. Section 338(h)(10) election
C. There is no such revenue code
23-
All of the following are intangible assets EXCEPT:

C, Brand
Patents
PP&E
A. Copyrights
24-
Which of the following is the cheapest form of financing? A,

Cash on hand
B. Debt financing
C. Equity financing
D. Stock sale
25-
Which of the following is a negative feature of debt financing?

C, Tax deductibility
ROE
Covenants
D. EPS accretion
26-
Which is the most common form of M&A deal structure? A,

Stock sale
C. Asset sale
D. Section 338 election
E. Cash on hand

27-An all-debt financing structure is typically:

B, The most dilutive

The most accretive
A. Optimal
B. Balanced
28-
If a merger or acquisition is not immediately accretive, should the acquirer go
through with the transaction? Why or why not?

No, the transaction will dilute the EPS and destroy shareholder value
Yes, accretion/dilution is not important
C, It depends; expected synergies and growth prospects may make the deal accretive
and therefore create shareholder value
No, once a deal is dilutive it cannot become accretive

Private sale