Question 1

Big Lite Inc.purchases Canton Bulbs,its direct competitor,by buying most of its stock.In this scenario,Big Lite Inc.is involved in a(n)_____.

Accepted Answer

An acquisition occurs when one company purchases most or all of another company's shares to gain control of that company. In this scenario, Big Lite Inc. is buying most of the stock of Canton Bulbs, its direct competitor, which is a classic example of an acquisition.

Question 2

North Farm Society is an association of farmers from rural communities.Its agenda is not to make profits but to help its members market their produce and purchase large quantities of fertilizer,seeds,and other supplies at discounted prices.Thus,North Farm Society is an example of a(n)_____.

Accepted Answer

North Farm Society is an example of a cooperative because it is an organization owned and operated by a group of individuals for their mutual benefit, particularly to market their produce and purchase supplies at discounted prices, which aligns with the definition of a cooperative.

Question 3

Big City Financial is allowing stockholders to purchase more shares of stock at prices below the existing market value.This is an attempt to avoid a hostile takeover by a corporate raider.Which of the following methods is being used by Big City Financial to evade the takeover?

Accepted Answer

A poison pill strategy allows existing shareholders to purchase additional shares at a discount, diluting the value of shares and making a takeover more expensive and less attractive for the aggressor.

Question 4

When a corporate raider wants to acquire or take over another company,it first offers to buy some or all of the other company's stock at a premium over its current price in a(n)_____.

Accepted Answer

A tender offer is when a corporate raider or acquiring company offers to buy shares from the shareholders of the target company at a premium to the current market price, in an attempt to gain control of the company.

Question 5

Which of the following forms of business ownership provides limited liability but is taxed like a partnership?

Accepted Answer

A limited liability company (LLC) provides limited liability to its owners (like a corporation) but can be taxed like a partnership, allowing profits to pass through to the owners without being taxed at the company level.

Question 6

Tim and Andy,wealthy industrialists,borrow money from True Global Bank to acquire Univo Corp.They promise to repay the bank using the assets of Univo Corp.as collateral.In this scenario,Tim and Andy are involved in a:

Accepted Answer

This scenario describes a leveraged buyout (LBO), where Tim and Andy are borrowing money to acquire another company, Univo Corp., and are using the assets of the company they are acquiring as collateral for the loan.

Question 7

Razor Inc.,an automobile company,merges with Tyros Inc.,a firm that manufactures tires,in order to limit the uncertainty in the supply of automobile tires and reduce the production cost of its cars.This merger is an example of a:

Accepted Answer

A vertical merger occurs when two companies at different stages of production or the supply chain merge. Razor Inc. (an automobile company) merging with Tyros Inc. (a tire manufacturer) is an example of a vertical merger because it combines companies in different stages of the production process for automobiles, aiming to secure the supply of a key component (tires) and reduce production costs.

Question 8

An organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization is known as a(n)_____.

Accepted Answer

A cooperative is an organization where individuals or small businesses unite to enjoy the advantages of being part of a larger group, such as shared resources or bargaining power.

Question 9

United Movies Inc.,a movie production company,and Fox Apparel,a premium clothing brand,joined their businesses together.This is an example of a _____.

Accepted Answer

A conglomerate merger occurs when two companies that operate in completely different industries or sectors join together, as is the case with a movie production company and a clothing brand.

Question 10

In the context of corporations,what is a white knight?

Accepted Answer

A white knight is a more favorable company that comes to the rescue of a target company that is facing a hostile takeover bid from another party. The white knight offers a friendly takeover alternative, which is often more acceptable to the target company's management and board of directors.

Question 11

Big Sandwiches merges with its supplier,FC Ingredients,in an effort to have a constant supply of sauce for its sandwiches.This is an example of a:

Accepted Answer

A vertical merger occurs when two companies at different stages of the production process merge. In this case, Big Sandwiches (a sandwich producer) merges with FC Ingredients (a supplier of ingredients like sauce), which is a classic example of a vertical merger because it combines companies from different stages of the production supply chain.

Question 12

A similarity between limited liability companies and S corporations is that both:

Accepted Answer

Both limited liability companies (LLCs) and S corporations offer limited liability protection to their owners, meaning the personal assets of the owners are protected from the business's debts and liabilities.

Question 13

Which of the following is true of limited liability companies?

Accepted Answer

Limited liability companies (LLCs) protect the members' personal assets from the company's debts and liabilities. This means that if the LLC faces a lawsuit or incurs debt, the personal assets of the members (like their homes, cars, and personal bank accounts) are usually protected.

Question 14

If a firm issues a poison pill when facing a hostile takeover attempt,it:

Accepted Answer

A poison pill is a defensive strategy used by companies facing a hostile takeover attempt. It allows existing shareholders to purchase additional shares at a discount, diluting the ownership interest of the new, potential acquirer and making the takeover less attractive or more costly.

Question 15

Which of the following is a difference between limited liability companies (LLCs)and S corporations?

Accepted Answer

LLCs are generally simpler to run than S corporations because they have fewer formalities and administrative requirements, such as not needing to hold annual meetings or keep detailed records like S corporations.

Quiz 4: Options for Organizing Business

Big Lite Inc.purchases Canton Bulbs,its direct competitor,by buying most of its stock.In this scenario,Big Lite Inc.is involved in a(n) _____.

North Farm Society is an association of farmers from rural communities.Its agenda is not to make profits but to help its members market their produce and purchase large quantities of fertilizer,seeds,and other supplies at discounted prices.Thus,North Farm Society is an example of a(n) _____.