Answer:
True
Question: Which of the following actions does NOT help managers defend against a hostile takeover?
Answer Options:
a. Establishing a poison pill provision.
b. Granting lucrative golden parachutes to senior managers.
c. Establishing a super-majority provision in the company’s bylaws to raise the percentage of the board of directors necessary to approve a merger.
Answer:
b. Granting lucrative golden parachutes to senior managers.
Question: If a petrochemical firm that used oil as feedstock merged with an oil producer that had large oil reserves and a drilling subsidiary, this would be a vertical merger. a. True b. False
Answer:
True
Question: Which of the following statements is most CORRECT?
Answer Options:
a. If a company that produces military equipment merges with a company that manages a chain of motels, this is an example of a horizontal merger.
Answer:
a. If a company that produces military equipment merges with a company that manages a chain of motels, this is an example of a horizontal merger.
Question: Borrowing funds on terms that would require immediate repayment of all loans if the firm is acquired, selling off at bargain prices the assets that originally made the firm a desirable target, and granting huge “golden parachutes” that open if the firm is acquired are 3 procedures used to defend against hostile takeovers. These strategies are known as “poison pills.” a. True b. False
Answer:
True
Question: The primary reason given by managers for most mergers is the acquisition of more assets so as to increase sales and market share. a. True b. False
Answer:
False
Question: Which of the following statements is most CORRECT?
Answer Options:
a. The high value of the U.S. dollar relative to Japanese and European currencies in the 1980s, made U.S. companies comparatively inexpensive to foreign buyers, spurring many mergers.
b. During the 1980s, the Reagan and Bush administrations tried to foster greater competition and they were adamant about preventing the loss of competition; thus, most large mergers were disallowed.
Answer:
a. The high value of the U.S. dollar relative to Japanese and European currencies in the 1980s, made U.S. companies comparatively inexpensive to foreign buyers, spurring many mergers.
Question: Discounted cash flow methods are not appropriate for evaluating mergers because the cash flows are uncertain and the discount rate can only be determined after the merger is consummated.
Answer Options:
a. True
b. False
Answer:
b. False
Question: Since the primary rationale for any operating merger is synergy, in planning such mergers the development of accurate pro forma cash flows is the single most important task. a. True b. False
Answer:
True
Question: Which of the following statements is most CORRECT?
Answer Options:
a. Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes. Thus, firms with excess cash rarely undertake mergers.
b. The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations, and the higher the probability that the merger will be completed.
c. Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger.
d. Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what’s probably a lower cost, research of U.S. firms suggests that in most cases, diversification through mergers does not increase the firm’s value.
e. Research of U.S. firms suggests that managers’ personal motivations have had little, if any, impact on firms’ decisions to merge.
Answer:
d. Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what’s probably a lower cost, research of U.S. firms suggests that in most cases, diversification through mergers does not increase the firm’s value.
Question: The purchase of assets at below their replacement cost and tax considerations are two factors that motivate mergers. a. True b. False
Answer:
True