1.a. Comparative Common-Size Statement using Revenue as the base measure.

Year 1 Year 2 Year 3

Revenue 100% 100% 100%
Cost of sales 60% 50% 60%
Gross Profit 40% 50% 40%
Sales and marketing 10% 8.33% 6.67%
General and Admin. 7.5% 8.33% 10%
Research and Dev 7.5% 8.33% 3.33%
Operating Inc 15% 25% 20%

1.b. Common Base Year Incone statement using year 1 as the base year.
Year 1 Year 2 Year 3
Revenue 100% 120% 150%
Cost of Goods Sold 100% 100% 150%
Gross profit 100% 150% 150%
Sales and Marketing 100% 100% 100%
General and Admin 100% 133% 200%
Research and dev. 100% 133% 66.67%
Operating Inc 100% 200% 200%

2. Growth rate of revenue and operating income for Year 2 and Year 3
Revenue
Year 2 ((24,00-20,00)/20,00) 20%
Year 3 ((30,00-24,00)/24,00) 25%
Operating Income
Year 2 ((6,000-3,000)/3,000) 100%
Year 3 ((6,000-6,000)/6,000) 0%
1. What is a merger?
A merger is a combination of two or more companies in which only one firm remains to
be as the legal or controlling entity.
2. What is acquisition?
An acquisition is when a company acquires another company as part of its overall
strategy.
3. What are the types of divestitures?
a. Spin-off – a form of divestiture in which a division or subsidiary becomes an
independent company. Shares for the new company are distributed to the parent
company’s shareholders on a pro rata basis.
b. Equity Curve-out – a form of divestiture which happens when there is a public sale of
stocks in a subsidiary wherein the parent company usually retains majority control.
4. Two types of bankruptcy in the US
a. Liquidation – Chapter of the US bankruptcy law. Selling of the company’s asset and
distributing the proceeds to its creditors.
b. Reorganization – Chapter 11 of the US bankruptcy law. The rehabilitation of an
enterprise.
5. Order of priority in a bankruptcy
a. Administrative expenses which includes legal fees related to filing of the bankruptcy.
b. Claims by creditors that arises from the creditors’ normal course of business.
c. Wages of employees within 90 days from the filing of bankruptcy. Maximum of $2000
per employee.
d. Claims for contribution of employee benefits rendered within 180 days of the
bankruptcy petition. Maximum of $2000 per employee.
e. Claims for customers who made cash deposits for goods or services not rendered by the
company. Maximum of $900 per customer.
f. Taxes owed.
g. Unsecured claims by creditors filed on time or tardily without them knowing of the
bankruptcy petition.
h. Unsecured claims filed by creditors after the bankruptcy petition with their knowledge
of the bankruptcy.
i. Fines and punitive damages.
j. Interest accrued to claims after the filing of petition.