Deck 12: International Alliances and Acquisitions

Question 1

An arrangement in which firms share resources or develop or market products,is generally referred to as a:

A)joint venture.
B)strategic alliance.
C)distribution agreement.
D)merger.

Answer 1

strategic alliance.

Question 2

Why is outsourcing often controversial?

A)Outsourcing is much more expensive than in-sourcing.
B)Outsourcing avoids the restrictions imposed on imports.
C)When outsourcing results in the loss of domestic jobs,outsourcing is criticized for causing the lost jobs to be transferred to other countries.
D)When outsourcing results in an influx of foreign workers into a country,those foreign workers take jobs from domestic workers.

Answer 2

When outsourcing results in the loss of domestic jobs,outsourcing is criticized for causing the lost jobs to be transferred to other countries.

Question 3

_____________________ are separate entities created by two or more existing entities to accomplish a specific business purpose.

A)Strategic alliances
B)Acquisitions
C)Joint ventures
D)MNCs

Answer 3

Joint ventures

Question 4

When two firms combine to form a new firm,and the two original firms cease to exist,a(n)_________________________ is accomplished.

A)acquisition
B)strategic alliance
C)joint venture
D)merger

Question 5

An important use of joint ventures in cross-border situations is:

A)to avoid double taxation.
B)to create a joint venture to take advantage of local financing or incentives.
C)to keep the investment by foreign entities in a country secret from officials in that country.
D)to avoid local remittance restrictions.

Question 6

How can MNCs preemptively deflect the enactment of adverse regulations in a foreign country?

A)An MNC can invest in or align itself with a domestic firm in the foreign country and thereby try to avoid the adverse regulation or the application of the adverse regulation because of the potential for an adverse effect on the domestic firm.
B)An MNC can move its funds and its moveable assets out of the country before the adverse regulations are placed into effect.
C)An MNC can buy insurance to protect it against adverse regulations put into effect after the MNC has made an investment in the foreign country.
D)An MNC can employ high government officials in the country that will impose the adverse regulations and use their connections with those officials to defeat the regulations or arrange that the regulations not apply to the MNC.

Question 7

A simple international transaction that involves the transfer,usually for a limited time,of specific technology or intellectual property from one firm to another firm is known as a:

A)patent transfer.
B)licensing agreement.
C)lease agreement.
D)merger.

Question 8

Usually the steps that a firm takes to penetrate a new market are:

A)make an alliance with a firm already in the new market and then buy that firm.
B)hire a firm already in that market to advise on entering the new market and then enter the market with new products.
C)sell their products in the new market and then produce their products in the new market.
D)sell existing products in the market and then create new products for the market.

Question 9

What is a "greenfield" project?

A)A greenfield project is an environmentally-friendly project.
B)A greenfield project is a project that is located in a foreign country and encouraged by that country.
C)A greenfield project is a project that involves an MNC and a firm in another country.
D)A greenfield project is a project that starts from scratch and produces the facility that is needed.

Question 10

What is the primary difference between outsourcing agreements and procurement agreements?

A)Outsourcing agreements provide for the purchase of finished goods while procurement agreements provide for the purchase of raw materials.
B)Outsourcing agreements are generally broader in scope than procurement agreements.
C)Procurement agreements must be approved by the government of the country where the procurements are to be made,but outsourcing agreements do not require approval.
D)Procurement agreements seek to obtain tangible goods while outsourcing agreements are limited to services.

Question 11

A real option that is often involved in a joint venture is the option to:

A)bring other entities into the joint venture once it has been established.
B)take control of the joint venture.
C)end the joint venture without the consent of the other entities involved in the joint venture.
D)invest more capital in the joint venture so that it can pursue new opportunities.

Question 12

How does a nation limit foreign investment in the industries that the nation considers to be sensitive?

A)Firms in sensitive industries are typically owned by the government and foreign investment is limited to short-term loans to firms in sensitive industries.
B)Foreign investment in a nation's sensitive industries is usually limited to minority ownership in a firm in a sensitive industry.
C)Foreign investors in firms in sensitive industries in a nation are usually required to place their ownership interests in those firms in trust with a government agency.
D)Any foreign investment in a firm in a sensitive industry must be approved by the government that considers the industry to be sensitive.

Question 13

Specific technologies that an MNC may need are not always available everywhere.This uneven dispersion of technologies is due to factors such as:

A)cross-border investment restrictions and remittance restrictions.
B)capital requirements and political restrictions.
C)communications and country risk.
D)tradition,education and availability of raw materials.

Question 14

If an MNC and a local firm form a joint venture,and the local firm has an option to take over the joint venture,the local firm is said to have a:

A)investment opportunity.
B)convertible option.
C)call option.
D)participating option.

Question 15

Disruptions in commodity prices and inflation are referred to as:

A)macroeconomic downturns.
B)economic corrections.
C)economic shocks.
D)economic adjustments.

Question 16

What is a "deal" in the context of international business?

A)A deal is any agreement between an MNC and a firm in another country.
B)A deal is any transaction in which an MNC agrees to buy another firm.
C)A deal is a shorthand term for a transaction in which there is a contract between the firms involved in a project,usually in the form of an alliance or acquisition.
D)A deal is a transaction that involves an MNC,a governmental entity,and a firm in another country.

Question 17

When one firm buys another firm and the firm that was bought is absorbed by the purchasing firm,a(n)_______________________ occurs.

A)merger
B)acquisition
C)but-out
D)stock swap

Question 18

What is the primary difference between a strategic alliance and a joint venture?

A)A joint venture results in the formation of a new entity that is separate from the participating firms.
B)A strategic alliance is a more permanent and binding arrangement than a joint venture.
C)Strategic alliances are of more value to the participating firms than joint ventures.
D)Joint ventures can be used for cross-border alliances but strategic alliances cannot.

Question 19

Typically,joint ventures conduct:

A)a full spectrum of needed business activities,including financing,production and distribution.
B)only the business activities that cannot be performed by the entities creating the joint venture.
C)all of the business activities that are allowed where the joint venture operates,but not financing activities,which are conducted by the entities that formed the joint venture.
D)only the business activities that the joint venture can perform more efficiently than the entities that created the joint venture.

Question 20

How can owning a minority interest in another firm benefit the firm that owns the minority interest.

A)Owning a minority interest in a firm does not cost as much as acquiring a controlling interest,but the minority interest gives the firm owning a minority interest some input into the operation of the firm in which it owns a minority interest.
B)Owning a minority interest in a firm gives the firm owning the minority interest the first right of refusal to increase its ownership to a controlling interest.
C)Owning a minority interest in a firm gives the firm owning the minority interest the opportunity to control the election of directors and thereby control the firm.
D)Owning a minority interest in a firm gives the firm owning the minority interest enough control to merge with any firm other than the firm owning a minority interest.

Question 21

What category of merger costs are typically incurred post-merger?

A)Transaction costs
B)Merger costs
C)Transition costs
D)Explicit costs

Question 22

An appropriate value of a target to the acquiring firm is:

A)the future value of the cash flow that the target can expect over the life of the target's assets.
B)the present value of the cash flow that the target can expect over the life of the target's assets.
C)the present value of the estimated cash flow of the firm over a five year period plus the present value of the salvage value of the target's assets.
D)the future value of the expected cash flow from current and expected contracts of the target over the life of the target's assets.

Question 23

When an MNC merges with a firm that is in a related industry to the acquiring firm,the merger is called a:

A)horizontal merger.
B)equal-partner merger.
C)vertical merger.
D)downward merger.

Question 24

Large financial entities and very wealthy individuals who have funds to invest are the primary source of:

A)private equity funds.
B)cross-border M&A funds.
C)hedge funds.
D)globalized funds.

Question 25

The transaction value of a merger is:

A)the amount that the acquiring firm paid for the target.
B)the value of the target to the acquiring firm.
C)the increase in value that the acquiring firm realizes as a result of the merger or acquisition.
D)the difference in the target's value to the acquiring firm and the price the acquiring firm paid for the target.

Question 26

The per share value of a target in a merger or acquisition is determined by:

A)dividing the equity value of the target by the number of shares outstanding.
B)dividing the total value of the target by the number of shares that the target is authorized to issue.
C)multiplying the number of shares outstanding by the market price of the shares.
D)adding the equity value of the firm and the market price of its shares and dividing by the number of shares outstanding.

Question 27

The Sarbanes-Oxley Act:

A)restricts foreign firms from obtaining controlling interests in US energy firms.
B)prohibits foreign firms from acquiring any interest in US defense industry firms.
C)imposes restrictions on how much of a foreign firm's securities can be listed and sold on US security exchanges.
D)has reduced the value of cross-listing for firms outside of the US.

Question 28

In valuing a target of a merger or acquisition:

A)the market value of its outstanding shares of stock is a valid basis for valuing the target.
B)the cash flow from all of the target's product lines and businesses must be estimated and analyzed.
C)the average value of the target's stock value over the last year must be determined and analyzed.
D)the peak cash flow that the target has generated in the past is a good indication of the value of the target.

Question 29

One of the primary obstacles for cross-border mergers and acquisitions is:

A)the regulatory requirements that must be met in each country that is the domicile of a firm involved in the merger or acquisition.
B)deciding which currency that two firms that do not use the same currency will use after the merger or acquisition is completed.
C)consolidating the separate identities of the firms involved in the merger or acquisition into a single identity.
D)integrating the overlapping product lines of the firms involved in the merger or acquisition.

Question 30

Valuation asymmetries - different values for a target in a merger or acquisition from the viewpoints of different parties to the transaction - can arise from:

A)the failure of each party to take the same factors into consideration.
B)violations of the International Fisher Effect.
C)the application of the one price rule.
D)valuation of the target in different currencies.

Question 31

If an MNC is considering a merger or acquisition involving a target in a high-tax country,the value of that target to the MNC:

A)may be lower than the target's value in the country where it exists.
B)will not be affected.
C)may be higher than the target's value in the country where it exists.
D)will not be affected unless the MNC finances the merger or acquisition in the country where the target exists.

Question 32

The more visible costs of a merger,such as professional fees,are classified as:

A)sunk costs.
B)merger transaction costs.
C)conversion costs.
D)merger direct costs.

Question 33

Most large mergers today use _____________ to finance the transaction.

A)bank financing
B)stock
C)bonds
D)private equity funds

Question 34

In a joint venture where the local firm has the right to buy the MNC's interest in the joint venture,the MNC is said to be:

A)In a short position.
B)In a long position.
C)Exposed.
D)Over-invested.

Question 35

A primary difference in private equity funds and hedge funds is that:

A)private equity funds invest for the short-term while hedge funds invest and intend to stay invested in a firm for the long-term.
B)hedge funds only loan money to firms while private equity finds seek to take an equity stake in firms.
C)hedge funds are controlled by non-traditional financial entities like insurance companies and private equity finds generate most of their funds internally.
D)private equity funds often seek control of the firms they invest in while hedge funds generally are not interested in control.

Question 36

In evaluating a target in a merger or acquisition,if the target has outstanding debt:

A)the debt will probably discourage the acquiring firm from pursuing the merger or acquisition.
B)that debt must be added to the estimated value of the target to determine the target's equity value.
C)that debt must be subtracted from the estimated value of the target to determine the target's equity value.
D)that debt must be retired before the merger or acquisition can proceed.

Question 37

In most mergers,one firm acquires another firm or an identifiable portion of another firm either as a(n):

A)stock acquisition or an asset acquisition.
B)asset acquisition or an out-right purchase.
C)stock swap or an asset swap.
D)debt swap or a long-term payout.

Question 38

In valuing a target of a merger or acquisition,the WACC is used to:

A)discount free cash flow and salvage values.
B)value all assets of the target.
C)determine the political risk that the target faces.
D)determine the future value of the assets of the target.

Question 39

If an MNC and a local firm form a joint venture,and the MNC has the right to sell its interest in the joint venture to the local partner,the MNC is said to have a:

A)exit strategy.
B)call option.
C)investment opportunity.
D)put option.

Question 40

How can firms constructively react to overcapacity?

A)Firms can invest to modernize facilities and production facilities.
B)Firms can merge with firms that need addition capacity so that the capacity of the two firms balances out.
C)Firms can identify unproductive or underproductive assets and obtain the salvage value of those assets.
D)Firms can offshore or outsource to rid themselves of overcapacity.

Question 41

In considering the value of a real option to the target of a merger or acquisition,the most important factor to be considered is:

A)the currency in which the real option must be exercised.
B)whether the real option is a true option or an eventuality.
C)the standard deviation of such factors as GNP or inflation.
D)when the real option came into being.

Question 42

What is the difference between private equity funds and hedge funds?

Question 43

Why are terminal values important in valuing the target in a merger or acquisition?

A)Terminal values,the salvage value of the assets acquired in a merger or acquisition,can constitute a significant part of a target's total value.
B)Terminal value is the amount that the acquiring company will have to pay to get rid of a firm acquired in a merger or acquisition that does not work.
C)Terminal value is the final price that it will cost to acquire a target in a merger or acquisition.
D)Terminal value is the ex post cost of acquiring a target in a merger or acquisition.

Question 44

How is outsourcing related to a firm's core competencies?

Question 45

What is the difference between a vertical merger and a horizontal merger?

Question 46

Real options can affect the value of a potential target in a merger or acquisition.The acquiring firm,in determining how real options affect the value of the target must,most importantly,consider:

A)whether the real options belong to the target or to a subsidiary of the target.
B)how restrictions on remittances affect the real options.
C)whether the real option requires additional investments.
D)when the real options will be exercised.

Question 47

Why is overcapacity sometimes a negative condition for a firm?

Question 48

What is terminal value and why is it important in evaluating the value of a potential acquisition?

Question 49

When a firm that is seeking to acquire another firm analyzes data about the target firm seeking to confirm the value target firm,the acquiring firm is:

A)confirming valuation data.
B)satisfying requirements of the country where the target firm is located.
C)conducting due diligence.
D)completing the merger package.

Question 50

Methods of determining the value of a target in a merger or acquisition include:

A)the discounted cash flow method and the price-earnings method.
B)the weighted average cost of capital method and the discounted cash flow method.
C)the present value method and the price-earnings method.
D)the discounted cash flow method and the earnings-per-share method.

Question 51

If a target owns significant fixed assets for which there is an active secondary market:

A)the assets will be difficult to dispose of when those assets are no longer needed in the firm that survives the merger or acquisition.
B)the terminal value of the target will not be relevant because those assets will be used by the firm that survives the merger or acquisition.
C)plenty of those assets are available,so the assets value will be reduced.
D)precise estimates of the terminal value of the target can be obtained.