IFM11 TB Ch26

Topics: Net present value, Free cash flow, Cash flow Pages: 19 (3672 words) Published: March 15, 2015
CHAPTER 26
MERGERS, LBOs, DIVESTITURES, AND HOLDING COMPANIES

Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject lines.

True/False

Easy:

(26.1) Synergistic merger FUAnswer: a EASY
1.In a merger with true synergies, the post-merger value exceeds the sum of the separate companies' pre-merger values.

a.True
b.False

(26.1) Sources of synergy FUAnswer: a EASY
2.Synergistic benefits can arise from a number of different sources, including operating economies of scale, financial economies, and increased managerial efficiency.

a.True
b.False

(26.1) Spin-off FUAnswer: b EASY
3.A spin-off is a type of divestiture in which the assets of a division are sold to another firm.

a.True
b.False

(26.2) Conglomerate merger FUAnswer: b EASY
4.A conglomerate merger occurs when two firms with either a horizontal or a vertical business relationship combine.

a.True
b.False

(26.3) Mergers and interest rates FUAnswer: b EASY
5.Merger activity is likely to heat up when interest rates are high because target firms can expect to receive an especially high premium over the pre-announcement stock price.

a.True
b.False

(26.4) Defensive mergers FUAnswer: b EASY
6.Most defensive mergers occur as a result of managers' actions to maximize shareholders’ wealth.

a.True
b.False

(26.4) Merger terms FUAnswer: a EASY
7.Post-merger control and the negotiated price paid by the acquirer are 2 of the most important issues in agreeing on the terms of a merger.

a.True
b.False

(26.4) Defensive tactics FUAnswer: a EASY
8.A company seeking to fight off a hostile takeover might employ the services of an investment banking firm to develop a defensive strategy.

a.True
b.False

(26.6) Merger analysis FUAnswer: a EASY
9.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 action.

a.True
b.False

(26.13) Merger accounting FUAnswer: b EASY
10.Currently (2007), mergers can be accounted for using either the purchase method or the pooling method.

a.True
b.False

(26.15) Poison pills FUAnswer: a EASY
11.Borrowing funds on terms that would require immediate repayment of all funds if the firm is acquired, selling off valuable assets, 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

(26.17) Joint ventures FUAnswer: a EASY
12.A joint venture is one in which 2, or sometimes more, independent companies agree to combine resources in order to achieve a specific objective, usually limited in scope.

a.True
b.False

(26.18) Leveraged buyouts FUAnswer: a EASY
13.Leveraged buyouts (LBOs) occur when a firm's managers, generally backed by private equity groups, try to gain control of a publicly owned company by buying out the public shareholders using large amounts of borrowed money.

a.True
b.False

(26.20) Holding companies FUAnswer: b EASY
14.The two principal advantages of holding companies are (1) the holding company can control a great deal of assets with limited equity and (2) the dividends received by the parent from the subsidiary are not taxed if the parent holds at least 50% of the subsidiary's stock.

a.True
b.False

Medium:

(26.1) Merger motivation FUAnswer: a MEDIUM
15.The purchase of assets at below their replacement cost and tax considerations are two factors that motivate mergers.

a.True
b.False

(26.1) Merger motivation FUAnswer: b MEDIUM
16.The primary reason managers give for most mergers is to...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • IFM11 TB Ch30 Essay
  • IFM11 TB Ch24 Essay
  • IFM11 TB Ch25 Essay
  • IFM11 TB Ch29 Essay
  • IFM11 TB Ch27 Essay
  • IFM11 TB Ch28 Essay
  • Tb & Hiv Essay
  • Treatment of Tb Essay

Become a StudyMode Member

Sign Up - It's Free