Question 1

A ﬁnancial device designed to make unfriendly takeover attempts ﬁnancially unappealing, if not impossible, is called (a):

Accepted Answer

A poison pill is a financial device designed to make unfriendly takeover attempts financially unappealing, if not impossible. It may include provisions such as issuing new shares of stock to existing shareholders, making the acquisition more expensive, or allowing shareholders to buy additional shares at a discount, diluting the value of the acquirer's purchase.

Question 2

A contract that limits the holdings of a bidder to a minority stake in the target ﬁrm is called a:

Accepted Answer

A standstill agreement is a contract between a bidder and the target firm, which limits the bidder's ability to acquire a controlling stake in the target firm. It is used to prevent hostile takeovers and to provide the target firm with time to evaluate any proposals made by the bidder. The bidder agrees not to purchase any additional shares or launch a hostile bid for a set period of time.

Question 3

When Firm A acquired Firm B, no incremental value was created but earnings per share increased. If the ﬁnancial markets are astute, the price-earnings ratio of Firm A should ____ and the stock
Price of Firm A should _____.

Accepted Answer

When Firm A acquires Firm B without creating any incremental value, there is no reason for the financial markets to assign a higher price-earnings ratio to Firm A. Therefore, the price-earnings ratio of Firm A should decrease or remain constant. However, since earnings per share have increased, the stock price of Firm A may not necessarily decrease but may remain constant or increase slightly. Hence, the best answer is C.

Question 4

The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n):

Accepted Answer

The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as an equity carve-out.

Question 5

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n):

Accepted Answer

A spin-off is the distribution of shares in a subsidiary to existing parent company stockholders.

Question 6

If the average cost per unit decreases when a horizontal merger occurs then the combined ﬁrm is beneﬁting from synergy arising from:

Accepted Answer

Economies of scale refer to the cost advantages that a firm can achieve by increasing its production scale. When a horizontal merger occurs, the combined firm can reduce its average cost per unit by taking advantage of economies of scale. This is because the merged firm can now produce a larger output, which can be spread over a larger base of fixed costs. This results in a lower average cost per unit produced, which benefits the firm. Therefore, the correct answer is C.

Question 7

Eat M Up is considering a hostile takeover of the Everyday Company. To prevent such an event, the Everyday Company scrambles to get the Good Guys Network to buy them. The Good Guys
Network is referred to as the:

Accepted Answer

A White Knight is a friendly company or individual that comes to the rescue of a target company facing a hostile takeover by offering a bid for the company. The Good Guys Network is being referred to as the White Knight in this scenario as they are being sought out by Everyday Company to prevent the hostile takeover by Eat M Up.

Question 8

A change in the corporate charter making it more diﬃcult for the ﬁrm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Accepted Answer

A change in the corporate charter making it more difficult for the firm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a supermajority amendment.

Question 9

Corporate charter provisions allowing existing shareholders to purchase stock at some ﬁxed price in the event of a hostile outside takeover attempt are called ___________________.

Accepted Answer

The provisions described in the question are commonly known as "share rights plans" or "poison pills." Pac-man defenses involve the target company bidding for the stock of the acquiring company, while shark repellent plans involve anti-takeover measures put in place before any takeover attempt. Golden parachute provisions are severance packages for top executives in the event of a merger or acquisition, and greenmail provisions involve a target company buying back their own stock from a hostile bidder at a premium price.

Question 10

If a ﬁrm makes an acquisition to exploit perceived opportunities in a new industry, it is expecting ____________________ as a result of the purchase.

Accepted Answer

Strategic benefits are the most likely expected result of an acquisition aimed at exploiting perceived opportunities in a new industry. The firm is seeking to gain a foothold in a new market and leverage the resources and capabilities of the acquired company to achieve its strategic goals. While enhanced marketing strength and enhanced market power may be potential benefits of the acquisition, they are not as directly linked to the goal of entering a new industry. Economies of scale and tax gains may also be possible benefits, but they are not necessarily the primary focus of the acquisition.

Question 11

Schottenheimer Industries has a great deal of cash but few investment opportunities. Montana, Inc., on the other hand, has many investment opportunities but ﬁnds it diﬃcult to obtain ﬁnancing. The
Acquisition of Montana by Schottenheimer would be made in order to ________.

Accepted Answer

The acquisition of Montana by Schottenheimer would allow for the exploitation of synergies. Schottenheimer's excess cash can be used to finance Montana's investment opportunities, creating a mutually beneficial situation. Through the acquisition, the two companies can share resources and expertise to improve operations and increase profitability.

Question 12

Synergy is deﬁned as the:

Accepted Answer

Synergy refers to the positive incremental net gain that results from the combination of two or more firms, such as the increased market power and efficiencies that can be achieved through a merger or acquisition. The other choices do not accurately reflect the definition of synergy.

Question 13

A new company ﬁnanced with funds from two existing ﬁrms for the purpose of working together on a project is called a(n):

Accepted Answer

A joint venture is a new company that is created by two or more existing firms for the purpose of working together on a specific project. They pool their resources and expertise to achieve a common goal.

Question 14

The amount paid by an acquirer to the shareholders of the acquired ﬁrm that exceeds the stand- alone value is called the:

Accepted Answer

The amount paid by an acquirer to the shareholders of the acquired firm that exceeds the stand-alone value is called the merger premium. This amount represents the value that the acquirer sees in the target firm beyond its tangible assets and earnings potential. Option A, B, C, and D are incorrect because they refer to different concepts: greenmail is a payment by a target firm to a potential acquirer to avoid a hostile takeover, a golden parachute is a compensation package for executives in the event of a merger or acquisition, goodwill is an intangible asset that represents the difference between the value of a company and the value of its assets, and a poison put is a provision that allows bondholders to demand early repayment in the event of a specified event, such as a merger or acquisition.

Question 15

Suppose General Motors buys up auto dealerships in all the major cities in Canada. This is an example of a _________________ acquisition.

Accepted Answer

This is an example of vertical acquisition because General Motors is buying up distributors at different stages of the supply chain (auto dealerships), which are necessary for getting their vehicles to the end consumer. Horizontal acquisition would involve General Motors buying up other companies that produce and sell vehicles. Conglomerate acquisition would involve General Motors buying up unrelated businesses that are outside of the auto industry. Tender offer is a type of acquisition in which the acquiring company makes a direct offer to a company's shareholders to purchase their shares. Pooling of interests is a method of accounting for mergers and acquisitions in which the two companies combine their financial statements into one.

Question 16

A targeted stock repurchase of the ﬁrm directed at a potential bidder to discourage an unfriendly takeover attempt is called (a):

Accepted Answer

Greenmail is a strategy where a company buys back its own shares at a premium from a potential hostile bidder to prevent a takeover.

Question 17

An attempt to gain control of a ﬁrm by soliciting a suﬃcient number of shareholder votes to replace the current board of directors is called a:

Accepted Answer

The definition given in the question matches a proxy contest, which is an attempt by an outsider to gain control of a company by soliciting proxy votes from shareholders to replace the current board of directors. Tender offer is an attempt by an acquirer to gain control of a company by buying shares directly from shareholders. Going-private transaction is a process whereby a publicly-traded company is taken private by its management or an outside investor. Leveraged buyout is a transaction where a company is acquired using a significant amount of debt financing. Consolidation is the process where two companies merge to form a new entity.

Question 18

When a building supply store acquires a lumber mill they are doing a ______ acquisition.

Accepted Answer

When a building supply store acquires a lumber mill they are doing a vertical acquisition, which means acquiring a company in the same supply chain to control the production process from raw materials to distribution.

Question 19

A deal in which all publicly owned stock in a ﬁrm is replaced with complete equity ownership by a private group is called a:

Accepted Answer

A going-private transaction involves the complete equity ownership of a firm by a private group, which means that all publicly owned stock in the firm is replaced. This can be accomplished through various means, such as a management buyout or a leveraged buyout. Tender offers and proxy contests do not necessarily result in complete equity ownership by a private group, and consolidation refers to the merger of two or more companies.

Question 20

In the early 1900s, the Standard Oil Company purchased many of its competitors in order to reduce competition and increase its share of the domestic oil market. The ﬁrm's actions are consistent with
A strategy of making acquisitions to ________.

Accepted Answer

The answer of In the early 1900s, the Standard Oil...

Quiz 23: Enterprise Risk Management

A ﬁnancial device designed to make unfriendly takeover attempts ﬁnancially unappealing, if not impossible, is called (a) :

A contract that limits the holdings of a bidder to a minority stake in the target ﬁrm is called a:

When Firm A acquired Firm B, no incremental value was created but earnings per share increased. If the ﬁnancial markets are astute, the price-earnings ratio of Firm A should and the stock Price of Firm A should _.

The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n) :

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n) :

If the average cost per unit decreases when a horizontal merger occurs then the combined ﬁrm is beneﬁting from synergy arising from:

Eat M Up is considering a hostile takeover of the Everyday Company. To prevent such an event, the Everyday Company scrambles to get the Good Guys Network to buy them. The Good Guys Network is referred to as the:

A change in the corporate charter making it more diﬃcult for the ﬁrm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Corporate charter provisions allowing existing shareholders to purchase stock at some ﬁxed price in the event of a hostile outside takeover attempt are called ___________________.

If a ﬁrm makes an acquisition to exploit perceived opportunities in a new industry, it is expecting ____________________ as a result of the purchase.

Schottenheimer Industries has a great deal of cash but few investment opportunities. Montana, Inc., on the other hand, has many investment opportunities but ﬁnds it diﬃcult to obtain ﬁnancing. The Acquisition of Montana by Schottenheimer would be made in order to ________.

Synergy is deﬁned as the:

A new company ﬁnanced with funds from two existing ﬁrms for the purpose of working together on a project is called a(n) :

The amount paid by an acquirer to the shareholders of the acquired ﬁrm that exceeds the stand- alone value is called the:

Suppose General Motors buys up auto dealerships in all the major cities in Canada. This is an example of a _________________ acquisition.

A targeted stock repurchase of the ﬁrm directed at a potential bidder to discourage an unfriendly takeover attempt is called (a) :

An attempt to gain control of a ﬁrm by soliciting a suﬃcient number of shareholder votes to replace the current board of directors is called a:

When a building supply store acquires a lumber mill they are doing a ______ acquisition.

A deal in which all publicly owned stock in a ﬁrm is replaced with complete equity ownership by a private group is called a:

In the early 1900s, the Standard Oil Company purchased many of its competitors in order to reduce competition and increase its share of the domestic oil market. The ﬁrm's actions are consistent with A strategy of making acquisitions to ________.

Quiz 23: Enterprise Risk Management

A ﬁnancial device designed to make unfriendly takeover attempts ﬁnancially unappealing, if not impossible, is called (a) :

A contract that limits the holdings of a bidder to a minority stake in the target ﬁrm is called a:

When Firm A acquired Firm B, no incremental value was created but earnings per share increased. If the ﬁnancial markets are astute, the price-earnings ratio of Firm A should ____ and the stock Price of Firm A should _____.

The sale of stock in a wholly owned subsidiary via an initial public offering is referred to as a(n) :

The distribution of shares in a subsidiary to existing parent company stockholders is called a(n) :

If the average cost per unit decreases when a horizontal merger occurs then the combined ﬁrm is beneﬁting from synergy arising from:

Eat M Up is considering a hostile takeover of the Everyday Company. To prevent such an event, the Everyday Company scrambles to get the Good Guys Network to buy them. The Good Guys Network is referred to as the:

A change in the corporate charter making it more diﬃcult for the ﬁrm to be acquired by increasing the percentage of shareholders that must approve a merger offer is called a:

Corporate charter provisions allowing existing shareholders to purchase stock at some ﬁxed price in the event of a hostile outside takeover attempt are called ___________________.

If a ﬁrm makes an acquisition to exploit perceived opportunities in a new industry, it is expecting ____________________ as a result of the purchase.

Schottenheimer Industries has a great deal of cash but few investment opportunities. Montana, Inc., on the other hand, has many investment opportunities but ﬁnds it diﬃcult to obtain ﬁnancing. The Acquisition of Montana by Schottenheimer would be made in order to ________.

Synergy is deﬁned as the:

A new company ﬁnanced with funds from two existing ﬁrms for the purpose of working together on a project is called a(n) :

The amount paid by an acquirer to the shareholders of the acquired ﬁrm that exceeds the stand- alone value is called the:

Suppose General Motors buys up auto dealerships in all the major cities in Canada. This is an example of a _________________ acquisition.

A targeted stock repurchase of the ﬁrm directed at a potential bidder to discourage an unfriendly takeover attempt is called (a) :

An attempt to gain control of a ﬁrm by soliciting a suﬃcient number of shareholder votes to replace the current board of directors is called a:

When a building supply store acquires a lumber mill they are doing a ______ acquisition.

A deal in which all publicly owned stock in a ﬁrm is replaced with complete equity ownership by a private group is called a:

In the early 1900s, the Standard Oil Company purchased many of its competitors in order to reduce competition and increase its share of the domestic oil market. The ﬁrm's actions are consistent with A strategy of making acquisitions to ________.

When Firm A acquired Firm B, no incremental value was created but earnings per share increased. If the ﬁnancial markets are astute, the price-earnings ratio of Firm A should and the stock Price of Firm A should _.