MGT434 Exam – Questions And Answers (100%
Accurate)
Merger Right Ans - Combination of two or more companies into a single
firm => acquired firm ceases to exist
Consolidation Right Ans - entirely new firm is created (acquiring firm
and target terminate their previous legal existence)
Horizontal acquisition Right Ans - when acquirer and target in the same
industry
Vertical acquisition Right Ans - when acquirer and target are at different
stages of the production process (i.e. airline company acquiring a travel
agency)
Conglomerate acquisition Right Ans - acquirer and target are not related
to each other
A takeover can occur by Right Ans - 1. acquisition
2. proxy contest
3. going private
Proxy contest Right Ans - group of shareholders attempt to gain
controlling seats on the board of directors by voting in new directors
Leverage buyout (LBO) Right Ans - an attempt by employees,
management, or a group of investors to purchase an organization primarily
through borrowing
When the cash offer price is financed with a lot of debt. the extra debt
provides a tax deduction for the new owners
Management buyout Right Ans - Acquisition of the firm by its own
management in a leveraged buyout
Source of synergy Right Ans - revenue enchancement, cost reduction
and tax gains
, Divestiture Right Ans - the transfer of total or partial ownership of some
of a firm's operations to investors or to another company
Synergy is the additional value created ΔV(synergy) = Right Ans - V
(a+t) - (Va+Vt)
Va = pre-merger value of acquiring
Vt= pre-merger value of target
Va+t= value of post merger firm
Economies of scope Right Ans - savings that come from producing two
(or more) outputs at less cost than producing each output individually,
despite using the same resources and technology
Valuation creation motivations for M&A Right Ans - new management,
make use of unused capacity, reduced cash flow variability, increase in debt
capacity, tax benefits (tax shield), new connections to markets or people
Amalgamation Right Ans - a business combination where two or more
companies merge their assets and liabilities to form a new entity, and none
of the original companies survive => controlled by a parent company
M&A legislation Right Ans - 1. transparency
2. fair treatment
Takeover bid process (20% threshold) Right Ans - Once at this
threshold, the shareholder is not allowed further open market purchases
and must make a takeover bid to acquire more. This allows all shareholders
an equal opportunity to tender more shares and forces equal treatment of
all at the same price.
Acquirer's share price will rise if Right Ans - price < value target + value
synergies
Acquirer's share price will not change if Right Ans - price = value target
+ value synergies
Accurate)
Merger Right Ans - Combination of two or more companies into a single
firm => acquired firm ceases to exist
Consolidation Right Ans - entirely new firm is created (acquiring firm
and target terminate their previous legal existence)
Horizontal acquisition Right Ans - when acquirer and target in the same
industry
Vertical acquisition Right Ans - when acquirer and target are at different
stages of the production process (i.e. airline company acquiring a travel
agency)
Conglomerate acquisition Right Ans - acquirer and target are not related
to each other
A takeover can occur by Right Ans - 1. acquisition
2. proxy contest
3. going private
Proxy contest Right Ans - group of shareholders attempt to gain
controlling seats on the board of directors by voting in new directors
Leverage buyout (LBO) Right Ans - an attempt by employees,
management, or a group of investors to purchase an organization primarily
through borrowing
When the cash offer price is financed with a lot of debt. the extra debt
provides a tax deduction for the new owners
Management buyout Right Ans - Acquisition of the firm by its own
management in a leveraged buyout
Source of synergy Right Ans - revenue enchancement, cost reduction
and tax gains
, Divestiture Right Ans - the transfer of total or partial ownership of some
of a firm's operations to investors or to another company
Synergy is the additional value created ΔV(synergy) = Right Ans - V
(a+t) - (Va+Vt)
Va = pre-merger value of acquiring
Vt= pre-merger value of target
Va+t= value of post merger firm
Economies of scope Right Ans - savings that come from producing two
(or more) outputs at less cost than producing each output individually,
despite using the same resources and technology
Valuation creation motivations for M&A Right Ans - new management,
make use of unused capacity, reduced cash flow variability, increase in debt
capacity, tax benefits (tax shield), new connections to markets or people
Amalgamation Right Ans - a business combination where two or more
companies merge their assets and liabilities to form a new entity, and none
of the original companies survive => controlled by a parent company
M&A legislation Right Ans - 1. transparency
2. fair treatment
Takeover bid process (20% threshold) Right Ans - Once at this
threshold, the shareholder is not allowed further open market purchases
and must make a takeover bid to acquire more. This allows all shareholders
an equal opportunity to tender more shares and forces equal treatment of
all at the same price.
Acquirer's share price will rise if Right Ans - price < value target + value
synergies
Acquirer's share price will not change if Right Ans - price = value target
+ value synergies
