BUSI 4940 EXAM 3 QUESTIONS AND ANSWERS
Corporate level is concerned with - Answers - Diversification
Merger - Answers - 2 firms agree to integrate their operations on a relatively co-equal
basis to create another NEW firm
Acquisition - Answers - One firm buys a controlling (100% interest) in another firm with
the intent of making the acquired firm a subsidiary business w/in its portfolio (amazon
buying whole foods)
Takeover - Answers - Acquisition in which the target firm did not solicit the acquiring
firm's bid for outright ownership
Increased Market Power occurs when: - Answers - ability to sell goods above
competitive levels, costs of activities below competitors, a firm's size
Acquisitions intended to increase market power are subject to: - Answers - Regulatory
review and analysis by financial markets
Market power is increased by: - Answers - Horizontal acquisitions, Vertical Acquisitions,
Related acquisitions
Entry Barriers - Answers - factors associated w a company's ability to engage
immediate access in a specific market
Cross-Border Acquisitions - Answers - acquisitions made between firms with
headquarters in different countries
Firms acquire (buy) because: - Answers - cost of new product development is high,
desire an increased speed to enter product market (FB buying Insta)
Lower risk compared to Developing new products - Answers - managers view
acquisitions as low risk, acquisitions discourgae innovation
All diversification can be implemented through acquisitions and ____ risk - Answers -
mitigate
An acquisition can: (reshaping firm's competitive scope) - Answers - reduce negative
effect of an intense rivalry, reduce a firm's dependence
Learning & Develop New capabilities to: - Answers - build their own knowledge base,
gain capabilities the firm doesn't already possess
, Integration challenges include: - Answers - melding two disparate corp cultures, resolve
problems regarding the status of the newly acquired firm's executives
Due Diligence - Answers - process of evaluating a target firm for acquisition
Evaluation requires examining: - Answers - Financing of intended transaction,
differences in culture between firms, tax consequences of transactions
Large Amounts of Debt can: - Answers - Increase likelihood of bankruptcy, lead to a
downgrade of firm's credit rating, preclude investment in activities that contribute to
firm's long-term success
Synergy - Answers - When assets are worth more when used in conjunction with each
other than when they are used separately (1+1=3)
Private Synergy - Answers - idea of a perfect match
Too much diversification: - Answers - performance drops; curvilinear relationship
between diversification and performance
Managers overly focused on acquisitions: - Answers - completing effective due
diligence, prep for negotiations, neglecting strategic role of their job
Acquiring firm becomes too large: - Answers - additional costs of controls exceed the
benefits, less innovation
Restructuring - Answers - strategy through which a firm changes its set of
businesses/financial structure
Restructuring Strategies: - Answers - downsizing, down-scoping, leverage buyouts
Downsizing - Answers - reduction in number of a firm's employees
Reasons for downsizing - Answers - expect improved profitability from cost reductions,
desire for more efficiency
Downscoping - Answers - set of actions causing a firm to refocus on its core business -
changes composition
Leveraged Buyout (LBO) - Answers - A party buys all of a firm's assets to make the firm
private, sell assets
Cooperative Strategy - Answers - in which two or more firms work together to achieve a
shared objective
Corporate level is concerned with - Answers - Diversification
Merger - Answers - 2 firms agree to integrate their operations on a relatively co-equal
basis to create another NEW firm
Acquisition - Answers - One firm buys a controlling (100% interest) in another firm with
the intent of making the acquired firm a subsidiary business w/in its portfolio (amazon
buying whole foods)
Takeover - Answers - Acquisition in which the target firm did not solicit the acquiring
firm's bid for outright ownership
Increased Market Power occurs when: - Answers - ability to sell goods above
competitive levels, costs of activities below competitors, a firm's size
Acquisitions intended to increase market power are subject to: - Answers - Regulatory
review and analysis by financial markets
Market power is increased by: - Answers - Horizontal acquisitions, Vertical Acquisitions,
Related acquisitions
Entry Barriers - Answers - factors associated w a company's ability to engage
immediate access in a specific market
Cross-Border Acquisitions - Answers - acquisitions made between firms with
headquarters in different countries
Firms acquire (buy) because: - Answers - cost of new product development is high,
desire an increased speed to enter product market (FB buying Insta)
Lower risk compared to Developing new products - Answers - managers view
acquisitions as low risk, acquisitions discourgae innovation
All diversification can be implemented through acquisitions and ____ risk - Answers -
mitigate
An acquisition can: (reshaping firm's competitive scope) - Answers - reduce negative
effect of an intense rivalry, reduce a firm's dependence
Learning & Develop New capabilities to: - Answers - build their own knowledge base,
gain capabilities the firm doesn't already possess
, Integration challenges include: - Answers - melding two disparate corp cultures, resolve
problems regarding the status of the newly acquired firm's executives
Due Diligence - Answers - process of evaluating a target firm for acquisition
Evaluation requires examining: - Answers - Financing of intended transaction,
differences in culture between firms, tax consequences of transactions
Large Amounts of Debt can: - Answers - Increase likelihood of bankruptcy, lead to a
downgrade of firm's credit rating, preclude investment in activities that contribute to
firm's long-term success
Synergy - Answers - When assets are worth more when used in conjunction with each
other than when they are used separately (1+1=3)
Private Synergy - Answers - idea of a perfect match
Too much diversification: - Answers - performance drops; curvilinear relationship
between diversification and performance
Managers overly focused on acquisitions: - Answers - completing effective due
diligence, prep for negotiations, neglecting strategic role of their job
Acquiring firm becomes too large: - Answers - additional costs of controls exceed the
benefits, less innovation
Restructuring - Answers - strategy through which a firm changes its set of
businesses/financial structure
Restructuring Strategies: - Answers - downsizing, down-scoping, leverage buyouts
Downsizing - Answers - reduction in number of a firm's employees
Reasons for downsizing - Answers - expect improved profitability from cost reductions,
desire for more efficiency
Downscoping - Answers - set of actions causing a firm to refocus on its core business -
changes composition
Leveraged Buyout (LBO) - Answers - A party buys all of a firm's assets to make the firm
private, sell assets
Cooperative Strategy - Answers - in which two or more firms work together to achieve a
shared objective
