FNAN 522 QUESTIONS AND ANSWERS
t/f
one firm should acquire another firm only if doing so generates a positive NPV for the
acquiring firm's shareholders - Answers -true
what are the ways that a firm can be acquired? - Answers -merger
consolidation
acquisition of stock
acquisition of assets
the absorption of one firm by another, where the acquiring firm retains its identity and
the acquired firm ceases to exist as a separate firm is called: - Answers -merger
which of the following hold true when acquiring stock in a tender offer?
- in an acquisition neither a shareholder meeting nor a vote is required
- the bidding firm can deal directly with the shareholders of the target firm
- targeted managers often resist acquisition and increase the cost of acquisition
- complete absorption is necessary when acquiring stock - Answers -- in an
acquisition...
- the bidding firm...
- targeted managers..
complete absorption is NOT necessary when acquiring stock
the avoidance of hold out ____________ shareholders is an advantage of acquiring
another firm by purchasing its assets - Answers -minority
what does horizontal acquisition involve? - Answers -a merger between firms in the
same industry
what does a proxy give to a shareholder? - Answers -the right to vote on behalf of
another shareholder
an acquisition of assets (does/does not) require a vote of the shareholders of the selling
firm - Answers -does
in a tax-free acquisition, the shareholders of the acquired firm are considered to have
done what? - Answers -exchanged their old shares for new ones at equal value, so no
capital gain or loss occurs at the time of the transaction
the general requirements for tax-free status include what? - Answers -- the acquisition
must be for a business purpose
- there must be a continuation of equity interest by the target's shareholders in the
acquiring firm
, - the purpose of the acquisition must not be to avoid taxes
when a group of shareholders attempts to gain control of a firm by soliciting votes from
other stockholders are engaged in a _________ - Answers -proxy contest
if an acquisition is taxable, the target firm's shareholders may demand a higher price as
compensation for the ______________ effect - Answers -capital gains
what is the name for the excess of the purchase price over the sum of the fair market
values of the assets acquired? - Answers -goodwill
what are some opportunities for marketing gains in a merger? - Answers -- improved
distribution networks
- improved product mix
what is synergy? - Answers -- the difference between the value of a merged firm and
the sum of the values of the firms as separate entities
- the increase in value due to mergers
a ski equipment store merging with a tennis equipment store is an example of improving
operating through what? - Answers -complementary resources
t/f
in general, if the buying firm offers the selling firm cash for its equity, then it will be
classified as a tax-free acquisition - Answers -false
it will be a taxable acquisition
increased revenues form a merger can come from what? - Answers -- marketing gains
- strategic benefits
- market power
a reduction in the total level of inventory after a merger is an example of a reduction of
__________ capital - Answers -working
when the assets, liabilities, and any non-controlling interest of an acquired firm are
required to be reporting at their fair market value, which method is being used? -
Answers -the purchase accounting method
if an acquisition does not create value, then the _________ - Answers -earnings per
share may increase by the stock price of the acquiring firm may remain the same or
decline
inventory is an example of what kind of capital? - Answers -working
equipment and buildings are examples of what kind of capital? - Answers -fixed
t/f
one firm should acquire another firm only if doing so generates a positive NPV for the
acquiring firm's shareholders - Answers -true
what are the ways that a firm can be acquired? - Answers -merger
consolidation
acquisition of stock
acquisition of assets
the absorption of one firm by another, where the acquiring firm retains its identity and
the acquired firm ceases to exist as a separate firm is called: - Answers -merger
which of the following hold true when acquiring stock in a tender offer?
- in an acquisition neither a shareholder meeting nor a vote is required
- the bidding firm can deal directly with the shareholders of the target firm
- targeted managers often resist acquisition and increase the cost of acquisition
- complete absorption is necessary when acquiring stock - Answers -- in an
acquisition...
- the bidding firm...
- targeted managers..
complete absorption is NOT necessary when acquiring stock
the avoidance of hold out ____________ shareholders is an advantage of acquiring
another firm by purchasing its assets - Answers -minority
what does horizontal acquisition involve? - Answers -a merger between firms in the
same industry
what does a proxy give to a shareholder? - Answers -the right to vote on behalf of
another shareholder
an acquisition of assets (does/does not) require a vote of the shareholders of the selling
firm - Answers -does
in a tax-free acquisition, the shareholders of the acquired firm are considered to have
done what? - Answers -exchanged their old shares for new ones at equal value, so no
capital gain or loss occurs at the time of the transaction
the general requirements for tax-free status include what? - Answers -- the acquisition
must be for a business purpose
- there must be a continuation of equity interest by the target's shareholders in the
acquiring firm
, - the purpose of the acquisition must not be to avoid taxes
when a group of shareholders attempts to gain control of a firm by soliciting votes from
other stockholders are engaged in a _________ - Answers -proxy contest
if an acquisition is taxable, the target firm's shareholders may demand a higher price as
compensation for the ______________ effect - Answers -capital gains
what is the name for the excess of the purchase price over the sum of the fair market
values of the assets acquired? - Answers -goodwill
what are some opportunities for marketing gains in a merger? - Answers -- improved
distribution networks
- improved product mix
what is synergy? - Answers -- the difference between the value of a merged firm and
the sum of the values of the firms as separate entities
- the increase in value due to mergers
a ski equipment store merging with a tennis equipment store is an example of improving
operating through what? - Answers -complementary resources
t/f
in general, if the buying firm offers the selling firm cash for its equity, then it will be
classified as a tax-free acquisition - Answers -false
it will be a taxable acquisition
increased revenues form a merger can come from what? - Answers -- marketing gains
- strategic benefits
- market power
a reduction in the total level of inventory after a merger is an example of a reduction of
__________ capital - Answers -working
when the assets, liabilities, and any non-controlling interest of an acquired firm are
required to be reporting at their fair market value, which method is being used? -
Answers -the purchase accounting method
if an acquisition does not create value, then the _________ - Answers -earnings per
share may increase by the stock price of the acquiring firm may remain the same or
decline
inventory is an example of what kind of capital? - Answers -working
equipment and buildings are examples of what kind of capital? - Answers -fixed
