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A/An _______ technically is a combination of two or more companies in which all but one of the combining companies legally cease to exist. a. consolidation b. merger c. acquisition d. b and c 2. A _______ merger is a combination of two or more companies that compete directly with each other. a. vertical b. conglomerate c. horizontal d. All of the above 3. Which of the following are forms of merger transactions? a. Stock purchase and joint venture. b. Leverage buyout and stock purchase. c. Stock purchase and asset purchase. d. Stock purchase and holding company. 4. A/An _______ is a change to the asset side of the balance sheet. a. operational restructuring b. financial restructuring c. spinoff d. All of the above 5. Which of the following is not an anti-takeover measure? a. Staggered boards. b. Spinoff. c. Supermajority voting rules. d. Golden parachute contract. 6. Which of the following is a reason for making an acquisition? a. Availability of low-cost assets. b. Greater economies of scale. c. Tax considerations. d. All of the above. 7. Two basic methods can be used to account for mergers:

a. the purchase method and assignment. b. the purchase method and composition. c. extension and absolute priority rule. d. the purchase method and the pooling of interest method. 8. Which of the following is not a method used to value merger candidates? a. Adjusted book value method. b. Discounted cash flow method. c. Purchase method. d. Comparative price-earnings ratio method. 9. The _______ involves determining the market value of the company's underlying assets. a. adjusted book value method b. discounted cash flow method c. comparative price-earnings ratio method d. purchase method 10. A firm is _______ if it is unable to pay its debt and files a bankruptcy petition. a. legally insolvent b. technically insolvent c. in economic exposure d. bankrupt 11. An/a _______ is the process of informally liquidating a business. a. assignment b. extension c. composition d. merger 12. Divestitures are associated directly with a company's acquisitions. a. True. b. False. 13. Most mergers are accounted for using the purchase method. a. True b. False 14. Merger transactions that are effected through the use of voting equity securities are tax-free.

a. True. b. False. 15. A firm is technically insolvent if the recorded value of its assets is less than the recorded value of its liabilities. a. True. b. False.

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1. Suppose that the market price of Company X is $45 per share and that of Company
Y is $30. If X offers three-fourths a share of common stock for each share of Y, the ratio of exchange of market prices would be: .667 1.0 1.125 1.5

2. The restructuring of a corporation should be undertaken if

the restructuring can prevent an unwanted takeover. the restructuring is expected to create value for shareholders. the restructuring is expected to increase the firm's revenue. the interests of bondholders are not negatively affected.

3. The "information effect" refers to the notion that

a corporation's actions may convey information about its future prospects. management is reluctant to provide financial information that is not required by law.

agents incur costs in trying to obtain information. the financial manager should attempt to manage sensitive information about the firm.

4. In the long run, a successful acquisition is one that:

enables the acquirer to make an all-equity purchase, thereby avoiding additional financial leverage. enables the acquirer to diversify its asset base. increases the market price of the acquirer's stock over what it would have been without the acquisition. increases financial leverage.

5. Bidding companies often pay too much for the acquired firm. The hubris hypothesis
explains this by suggesting that the bidders have too little information to make an optimal decision. have big egos and this impedes rational decision-making. have difficulty in thinking strategically over the long-term. are overly influenced by the tax consequences of an acquisition.

6. A tender offer is
a goodwill gesture by a "white knight." a would-be acquirer's friendly takeover attempt. a would-be acquirer's offer to buy stock directly from shareholders. viewed as sexual harassment when it occurs in the workplace.

7. The public sale of common stock in a subsidiary in which the parent usually retains
majority control is called a pure play. a spin-off. a partial sell-off. an equity carve-out.

8. In the United States, goodwill charges arising from a current acquisition are
generally deductible for "tax purposes" over 15 years. 20 years. 40 years. no years (i.e., these goodwill charges are not deductible for "tax purposes").

9. Empirical evidence on acquisitions indicates

shareholders of the selling company, and buying company. no; no substantial; no no; substantial substantial; substantial

excess returns on average to the e xcess returns on average to those of the

10. One means for a company to "go private" is

divestiture. the pure play.

the leveraged buyout (LBO). the prepackaged reorganization.

11. Recent accounting changes in the US

eliminated the purchase method, allowing only the pooling-of-interests method for mergers and acquisitions eliminated the pooling-of-interests method, allowing only the purchase method for mergers and acquisitions allow for both the purchase method and the pooling-of-interests method for mergers and acquisitions outlawed the recording of goodwill for any merger or acquisition Answers 1 2 3 4 5 6 7 8 9 10 11 C B A C B C D A B C B