Deck 23: Future Value of 1 at Compound Interest

Question 1

The firm in a merger transaction that is being pursued as a takeover potential is called the

A) conglomerate.
B) holding company.
C) acquiring company.
D) target company.

Answer 1

D

Question 2

A occurs when the operations of the acquiring and target firms are combined in order to achieve economies and thereby cause the performance of the merged firm to exceed that of the pre- merged firm.

A) financial merger
B) operating merger
C) strategic merger
D) hostile takeover

Answer 2

C

Question 3

Greater control over the acquisition of new materials or the distribution of finished goods is an economic benefit of horizontal merger.

Answer 3

False

Question 4

Primary motives for merging include growth or diversification, synergy, fund raising, increased managerial skill or technology, tax considerations, increased ownership liquidity, and defense against takeovers.

Question 5

Holding companies simply are corporations that have voting control of one or more other corporations and the companies they control are often referred to as subsidiaries.

Question 6

In defending against a hostile takeover, the strategy that involves the target firm finding a more suitable acquirer and prompting it to compete with the initial hostile acquirer to take over the firm is called the strategy.

A) greenmail
B) white knight
C) poison pill
D) golden parachute

Question 7

In defending against a hostile takeover, the strategy that involves the target firm creating securities that give their holders certain rights that become effective when a takeover is attempted is called the strategy.

A) golden parachute
B) shark repellent
C) poison pill
D) greenmail

Question 8

A hostile merger is typically accomplished through

A) an exchange of the acquirer's stocks and bonds.
B) a cash purchase.
C) a tender offer.
D) an exchange of the acquirer's stock.

Question 9

The firm in a merger transaction that attempts to merge or takeover another company is called the

A) target company.
B) holding company.
C) conglomerate.
D) acquiring company.

Question 10

Typically, reasons for undertaking mergers are

A) only strategic.
B) in conflict with wealth maximization.
C) strategic or financial.
D) only financial.

Question 11

When a firm undertakes a merger in order to eliminate redundant functions or increase market share, this is an example of

A) financial merger.
B) friendly merger.
C) hostile takeover.
D) strategic merger.

Question 12

Strategic mergers seek to achieve various economies of scale by eliminating redundant functions, increasing market share, and improving raw material sourcing and finished product distribution.

Question 13

A friendly merger transaction is typically consummated through all of the following EXCEPT

A) a cash purchase.
B) a tender offer.
C) an exchange of the acquirer's stock and bonds.
D) an exchange of the acquirer's stock.

Question 14

The synergy of mergers includes the economies of scale resulting from the merged firms' lower overhead.

Question 15

In defending against a hostile takeover, the strategy that involves the firm repurchasing through negotiation a large block of stock at a premium from one or more shareholders in order to end those shareholders' hostile takeover attempt is known as the strategy.

A) golden parachute
B) poison pill
C) white knight
D) greenmail

Question 16

may result in expansion of operations in an existing product line and elimination of a competitor.

A) Vertical merger
B) Horizontal merger
C) Congeneric merger
D) Conglomerate merger

Question 17

Business combinations are used by firms to externally expand in order to achieve all of the following objectives EXCEPT

A) to increase common stock outstanding.
B) to acquire needed assets.
C) to increase productive capacity.
D) to increase liquidity.

Question 18

In defending against hostile takeover attempts, a company will include provisions in the employment contracts of key executives that provide them with sizable compensation if the firm is taken over. This is called the strategy.

A) golden parachute
B) shark repellent
C) greenmail
D) white knight

Question 19

results from the combination of firms in the same line of business.

A) Horizontal growth
B) Congeneric growth
C) Conglomerate diversification
D) Vertical growth

Question 20

Greater control over the acquisition of raw materials or the distribution of finished goods is an economic benefit of

A) congeneric merger.
B) horizontal merger.
C) conglomerate merger.
D) vertical merger.

Question 21

Firms' motives to merge include growth or diversification, synergy, fundraising, tax considerations, and defense against takeover.

Question 22

A poison pill is a takeover defense in which the target firm finds an acquirer more to its liking than the initial hostile acquirer and prompts the two to compete to take over the firm.

Question 23

A horizontal merger is a merger in which one firm acquires another firm in the same general industry but neither in the same line of business nor a supplier or customer.

Question 24

A white knight is a takeover defense in which a firm issues securities that give their holders certain rights that become effective when a takeover is attempted and that make the target firm less desirable to a hostile acquirer.

Question 25

Popular takeover defense methods include white knights, poison pills, greenmail and golden parachutes.

Question 26

Primary motives for merging include growth or diversification, synergy, fund raising, increased managerial skill or technology, tax considerations, increased ownership liquidity, and defense against takeovers.

Question 27

The overriding goal for merging is the maximization of the owners' wealth as reflected in the acquirer's share price.

Question 28

A conglomerate merger is a merger combining firms in unrelated businesses.

Question 29

A vertical merger is a merger of two firms in the same line of business.

Question 30

A vertical merger may result in expansion of operations in an existing product line and elimination of a competitor.