Deck 7: Buy-Side Ma

Question 1

Given the following details, what is the difference in seller net proceeds between the asset sale and the stock sale?

Details:
Corporate tax rate: 38%
Capital gains rate: 20%
Stock Sale:
Purchase price: $4,000.0m
Stock basis: $1,000.0m
Asset Sale:
Purchase price: $4,000.0m
Asset basis: $1,000.0m

A)$1,520.0m
B)$912.0m
C)$372.0m
D)$518.0m

Answer 1

$912.0m

Question 2

Calculate a target's deferred tax liability given the following details.

Details:
Tangible asset write-up: $100.0m
Intangible asset write-up: $50.0m
Total asset write-up: $150.0m
Tax rate: 38%

A)$57.0m
B)$19.0m
C)$114.0m
D)$76.0m

Answer 2

$57.0m

Question 3

Which form of integration expands an acquirer's geographic reach, product lines, services, or distribution channels?

A)Horizontal integration
B)Geographic integration
C)Vertical integration
D)Transitional integration

Answer 3

A

Question 4

Which type of corporation is taxed separately from its shareholders?

A)S corporation
B)C corporation
C)LLC
D)All corporations

Question 5

In a football field graphic for an M&A transaction, which of the following is a proxy for what a financial buyer would be willing to pay for the company?

A)Precedent transactions analysis
B)DCF
C)LBO
D)Comparable companies analysis

Question 6

Which of the following generally provides the highest valuation on a football field graphic display?

A)DCF
B)LBO
C)Comparable companies analysis
D)Precedent transactions analysis

Question 7

All of the following are reasons why M&A activity tends increase in strong economic times EXCEPT:

A)High management confidence
B)Financing is readily available
C)Companies have excess cash
D)Companies focus on fortifying their balance sheets

Question 8

When is goodwill created?

A)Purchase price exceeds the net identifiable assets
B)Acquirer's P/E is higher than target's
C)Purchase price exceeds the net identifiable assets
D)Acquirer's P/E is lower than target's

Question 9

Assuming this is a stock deal, calculate the goodwill created in the M&A transaction given the following details.

Details:
Shareholders' equity: $5,000.0m
Existing goodwill: $1,500.0m
Equity purchase price: $6,600.0m
Tangible and intangible asset write-ups: $1,200.0m
Deferred tax liabilities: $800.0m

A)$2,000.0m
B)$1,500.0m
C)$2,700.0m
D)$3,200.0m

Question 10

For day-to-day execution in an M&A process, appointed members) of the investment banking advisory team communicates) with:

A)A point person
B)The CEO
C)Investor relations
D)The CFO

Question 11

Which of the following in a buy-side M&A transaction employs analysis at different prices to help analyze and frame valuation?

A)Football field
B)AVP
C)Contribution analysis
D)Consequences analysis

Question 12

If a computer manufacturer purchases a semiconductor company, what form of integration is this?

A)Horizontal integration
B)Vertical integration
C)Backward integration
D)Forward integration

Question 13

In many instances, growth through acquisition is _________ than building a new business from scratch.

A)Cheaper
B)More time consuming
C)Faster
D)Both A and C

Question 14

When an acquirer buys a target in the same or a closely related business, synergies tend to be:

A)Nonexistent
B)Greater
C)Lower
D)Unknown

Question 15

All of the following are considered cost synergies EXCEPT:

A)Head count reduction
B)Consolidation of facilities
C)Lower cost of capital
D)Economies of scale

Question 16

Which of the following is NOT a benefit of debt financing from the acquirer's prospective?

A)EPS accretion
B)Tax deductibility
C)Lack of covenants
D)Return on equity

Question 17

Revenue synergies tend to be more _______ than cost synergies.

A)Safe
B)Speculative
C)Dependable
D)Conservative

Question 18

Which of the following M&A scenarios tends to use an all-stock consideration?

A)Horizontal integration
B)Vertical integration
C)Merger of equals
D)Forward integration

Question 19

When is a merger accretive?

A)Acquirer's pro forma EPS is lower
B)Target's P/E is higher than acquirer's
C)Acquirer's P/E is lower than target's
D)Acquirer's P/E is higher than target's

Question 20

A company that brings together a broad range of businesses is considered:

A)Horizontally integrated
B)A conglomerate
C)An oligopoly
D)Vertically integrated

Question 21

Which of the following is the cheapest form of financing?

A)Cash on hand
B)Debt financing
C)Equity financing
D)Stock sale

Question 22

Which of the following is a negative feature of debt financing?

A)Tax deductibility
B)ROE
C)Covenants
D)EPS accretion

Question 23

Which is the most common form of M&A deal structure?

A)Stock sale
B)Asset sale
C)Section 338 election
D)Cash on hand

Question 24

Acquirer share price volatility after a deal is announced is a reason why a target's shareholders may find:

A)Equity financing less desirable
B)Debt financing less desirable
C)Equity financing more desirable
D)A mix of debt and equity financing is less desirable

Question 25

If a merger or acquisition is not immediately accretive, should the acquirer go through with the transaction? Why or why not?

A)No, the transaction will dilute the EPS and destroy shareholder value
B)Yes, accretion/dilution is not important
C)It depends; expected synergies and growth prospects may make the deal accretive and therefore create shareholder value
D)No, once a deal is dilutive it cannot become accretive

Question 26

An all-debt financing structure is typically:

A)The most dilutive
B)The most accretive
C)Optimal
D)Balanced

Question 27

Which section of the Internal Revenue Code allows an acquirer to treat the purchase of the target's stock as an asset sale for tax purposes?

A)Section 225 election
B)Section 338
C)Section 338h)10) election
D)There is no such revenue code

Question 28

All of the following are intangible assets EXCEPT:

A)Brand
B)Patents
C)PP&E
D)Copyrights