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Question Text Option 1 Option 2 Option 3

Spin-offs
Spin-offs are not
are not taxed if the
taxed if the shareholder
Which of the following statements regarding spin-offs and carve-outs is
shareholder s of the
not true?
s of the parent
parent company Gains or
company are given at losses from
are given a least 80% carve-outs
majority of of the are taxed at
shares in shares in the
the new the new corporate
company company tax rate

An increase
in the If firm A
earnings The price- acquires
per share as earnings firm B then
a result of ratio will the number
an remain of shares in
acquisition constant as AB will
will a result of equal the
increase the an number of
price per acquisition shares of A
share of the which fails plus the
acquiring to create number of
Which one of the following statements is correct? firm. value. shares of B.

lower
create systematic benefit the
excessive risk and firm by
synergy in increase the eliminating
almost all value of the unsystemati
An acquisition completed simply to diversify a firm will: situations. firm. c risk.
 Bidder and
target
manageme
They They are nt often
promote often less reach
Which of the following is not true about friendly takeovers? ease of post expensive agreement
acquisition than hostile on key
integration takeovers issues early
in the
negotiation
process

The
Securities
and
Exchange
Commissio The threat
n Institutiona of hostile
Which of the following factors affect corporate governance? l activitist takeovers

Which of the following is not usually considered a takeover defense? A tender A poison A golden
offer pill parachute
A tender A proxt
Which of the following is not usually considered a takeover tactic? A bearhug offer contest
Cost = (x) Cost = Cost =
If firms A is acquiring firm B and B’s shareholders are given the fraction (PVAB) - PVAB - (x) PVAB - (x)
x of the combined firm, then the cost of this merger is: PVB PVB PVA

Investment opportunities can take the form of (i) internal investment

where there is expansion of existing projects or the addition of new (i) only
projects internally (ii) external investment in the form of mergers (iii)
restructuring. (ii) only (iii) only
When British Airways merged with Iberia, the Spanish airline, what kind Joint
of merger was this? Vertical Horizontal venture
Leveraged buyouts (LBOs) almost always involve:
(I) a large part of the purchase price is financed mostly by debt (II) most
of the is below investment grade (junk) (III) the firm goes private and its
shares are no longer traded on the open market I only II only III only

Shares of Shares of
the new the new
In case of spin-offs: company Shares of company
are given to the new are bought
shareholder company by
s of the are sold as borrowing
parent a public or issuing
company offering junk bonds
 Shares of Shares of
the new the new
In case of carve-outs: company Shares of company
are given to the new are bought
shareholder company by
s of the are sold as borrowing
parent a public or issuing
company offering junk bonds
The following reasons are good motives for mergers except:
(I) Economies of scale
(II) Complementary resources
(III) Diversification
(IV) Eliminating Inefficiencies
I only II only III only
Which of the following activities does not involve a change in the Share Proxy Exchange
ownership structure? repurchase contest offers
Which of the following is referred to as “a going private transaction” Manageme Leveraged Manageme
initiated by incumbent management? nt buyout cash out nt buy in

The
Which of the following would be a legitimate stated reason for an acquisition
acquisition? of critical Empire
mass Hubris building

It is an
acquisition
in which a
large It is an
What is a leveraged buyout? acquirer acquisition
has which is
leverage funded
through from a
bargaining relatively
It is a type power over large
of joint a small amount of
venture target. debt.

To
What is the most important fundamental reason for an acquiring To acquire To gain maximize
company to acquire a target company? strategic economies acquiring
options of scale firm value
Market Strategic
Which of the following are commonly cited reasons for M&As? Synergy power Aligment
 enables the increases
acquirer to the market
make an price of the
all-equity enables the acquirer's
purchase, acquirer to stock over
In the long run, a successful acquisition is one that:
thereby diversify its what it
avoiding asset base. would have
additional been
financial le without the
verage acquisition.

have big
have too have
egos and
little difficulty in
this
Bidding companies often pay too much for the acquired firm. information thinking
impedes
The hubris hypothesis explains this by suggesting that the bidders to make an strategicall
rational
optimal y over the
decision-
decision. long-term.
making

Which of the following are reasons why a firm may want to divest itself
of some of its assets? I. to raise cash II. to unload unprofitable operations
III. to improve the strategic fit of a firm's various divisions IV. to comply I, II, and III I, III, and
with antitrust regulations I & II only only IV only

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 I and III II and IV I, III, and
competitive IV. anticipated merger gains may not be fully achieved only only IV only

increase the
number of
shares
outstanding dilute a reduce the
while also corporate market
increasing raider's value of
the value ownership each share
The primary purpose of a flip-in provision is to: per share. position. of stock.
 Correct
Option 4 Option 5 Option 6 Answer
1

In Carve-outs,
parent
company has
the majority
control

If no value is
created when
firm A
acquires firm
B, then the
total value of
AB will equal
the value of A
plus the value
of B. 4

generally not
add any value
to the firm. 4
 4

They
generally do
not require
target
shareholder
approval

All of the
above
A staggered 1
board
4
A poison pill
1
Cost =
(x)PVAB - (x)
PVB
4

All of the
above
2
Conglomerate
4

all of the
above
1

None of the
above
 2

None of the
above
3

I,II, IV only
Leveraged
Buyout 2
Leveraged
Capitalization 1

The
acquisition of
monopoly 1

It is an
acquisition
which is
funded from a
relatively low
amount of
debt. 3

To entrench
management 3
4
All of above
increases
financial 3
leverage.

are overly
influenced by
the tax
2
consequences
of an
acquisition.

I, II, III, and

IV 4

I, II, and IV
only 4

give the
existing
corporate
directors the
sole right to
remove a
poison pill. 2