Answer Choices:
a. A hostile takeover is the main method of transferring ownership interest in a corporation.
b. A corporation is a legal entity created by a state, and it has a life and existence that is separate from the lives and existence of its owners and managers.
c. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization.
d. Limited liability is an advantage of the corporate form of organization to its owners (stockholders), but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.
e. Although the stockholders of the corporation are insulated by limited legal liability, the legal status of the corporation does not protect the firm’s managers in the same way, i.e., bondholders can sue the firm’s managers if the firm defaults on its debt.
Answer:
b
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. True False
Answer:
Options:
Question: The primary reason given by managers for most mergers is the acquisition of more assets so as to increase sales and market share. True False
Answer:
Options:
Question: Firms use defensive tactics to fight off undesired mergers. These tactics do NOT include
Answer:
Options:
Question: Which of the following statements is CORRECT?
Answer Choices:
a. A good goal for a firm’s management is the maximization of expected EPS.
b. Most business in the U.S. is conducted by corporations, and corporations’ popularity results primarily from their favorable tax treatment.
c. Conflicts can exist between stockholders and managers, but potential conflicts are reduced by the possibility of hostile takeovers.
d. Corporations and partnerships have an advantage over proprietorships because a proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.
e. For a stock to be in equilibrium, its intrinsic value must be greater than the actual market price.
Answer:
c
Question: The rate used to discount projected merger cash flows should be the overall cost of capital of the new consolidated firm because it incorporates the actual capital structure of the new firm.
Answer:
Options:
Question: Which of the following actions would be likely to encourage a firm’s managers to make decisions that are in the best interests of shareholders?
Answer Choices:
a. The percentage of executive compensation that comes in the form of cash is increased and the percentage coming from long-term stock options is reduced.
b. The state legislature passes a law that makes it more difficult to successfully complete a hostile takeover.
c. The percentage of the firm’s stock that is held by institutional investors such as mutual funds, pension funds, and hedge funds rather than by small individual investors rises from 10% to 80%.
d. The firm’s founder, who is also president and chairman of the board, sells 90% of her shares.
e. The firm’s board of directors gives the firm’s managers greater freedom to take whatever actions they think best without obtaining board approval.
Answer:
c
Question: Only if a target firm’s value is greater to the acquiring firm than its market value as a separate entity will a merger be financially justified.
Answer:
Options:
Question: Post-merger control and the negotiated price paid by the acquirer are two of the most important issues in the terms to merger agreements. True False
Answer:
Options:
Question: Which of the following actions does NOT help managers defend against a hostile takeover?
Answer:
Options:
Question: The purchase of assets at below their replacement cost and tax considerations are two factors that motivate mergers. True False
Answer:
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Question: Some people–including the former chairman of the Federal Reserve Board of Governors (Ben Bernanke)–have argued that one advantage of corporate debt from the stockholders’ standpoint is that the existence of debt forces managers to focus on cash flow and to refrain from spending too much of the firm’s money on private plane and other “perks.” This is one of the factors that led to the rise of LBOs and private equity firms.
Answer:
Options: