Question 1

A horizontal merger occurs between two companies within the same industry.

Accepted Answer

A horizontal merger is a type of merger where two companies that are in the same industry combine their operations. This can result in the companies being able to achieve economies of scale, reduce competition, and gain access to new markets.

Question 2

The acquisition of a coal mining business by a steel manufacturing company is an example of a vertical merger.

Accepted Answer

A vertical merger is when a company acquires or merges with a supplier or customer. In this case, the steel manufacturing company is acquiring a supplier of coal, making it a vertical merger.

Question 3

Financial restructuring generally refers to actions taken by the firm to change total debt and equity structure.

Accepted Answer

Financial restructuring involves changing the balance between debt and equity in a company's capital structure. This can include actions such as issuing new equity, retiring existing debt, or restructuring existing debt to reduce interest expenses.

Question 4

The target company is the firm being solicited by the acquiring company.

Accepted Answer

The target company is the company being targeted for acquisition by the acquiring company.

Question 5

In a statutory merger,the acquiring company assumes the assets and liabilities of the target firm in accordance with the prevailing federal government statutes.

Accepted Answer

The answer of In a statutory merger,the acquiring company assumes...

Question 6

An acquisition occurs when one firm takes a controlling interest in another firm,a legal subsidiary of another firm,or selected assets of another firm.The acquired firm often remains a subsidiary of the acquiring company.

Accepted Answer

This statement accurately describes an acquisition.

Question 7

In a statutory merger,both the acquiring and target firms survive.

Accepted Answer

In a statutory merger, the acquiring firm survives and the target firm ceases to exist as a separate legal entity.

Question 8

Investment bankers offer strategic and tactical advice and acquisition opportunities,screen potential buyers and sellers,make initial contact with a seller or buyer,and provide negotiation support for their clients.

Accepted Answer

Investment bankers do offer strategic and tactical advice, screen potential buyers and sellers, make initial contact with a seller or buyer, and provide negotiation support for their clients.

Question 9

The primary advantage of a holding company structure is the potential leverage that can be achieved by gaining effective control of other companies' assets at a lower overall cost than would be required if the firm were to acquire 100 percent of the target's outstanding stock.

Accepted Answer

The primary advantage of a holding company structure is indeed the potential leverage gained by gaining effective control of other companies' assets at a lower overall cost than acquiring 100 percent of a target's outstanding stock.

Question 10

A merger of equals is a merger framework usually applied whenever the merger participants are comparable in size,competitive position,profitability,and market capitalization.

Accepted Answer

A merger of equals is specifically designed for companies that are comparable in size, market position, and financial performance. It involves combining two companies of equal stature to achieve greater efficiency, profitability, and growth. Therefore, statement A is correct.

Question 11

A leveraged buyout is the purchase of a company using as much equity as possible.

Accepted Answer

A leveraged buyout is the purchase of a company using a significant amount of borrowed money or debt, rather than relying solely on equity.

Question 12

A divestiture is the sale of all or substantially all of a company or product line to another party for cash or securities.

Accepted Answer

A divestiture is the process of selling off all or a significant portion of a company or product line to another firm in exchange for cash or securities. This may be done to raise capital, streamline operations, or focus on core business operations.

Question 13

A conglomerate merger is one in which a firm acquires other firms,which are highly related to its current core business.

Accepted Answer

A conglomerate merger is one in which a firm acquires other firms that are not related to its current core business.

Question 14

Operational restructuring refers to the outright or partial sale of companies or product lines or to downsizing by closing unprofitable or non-strategic facilities.

Accepted Answer

Operational restructuring can involve selling off part of a company or product line, as well as closing down unprofitable or non-strategic facilities.

Question 15

Joint ventures are cooperative business relationships formed by two or more separate parties to achieve common strategic objectives

Accepted Answer

This statement accurately describes joint ventures.

Question 16

The merger of Exxon Oil Company and Mobil Oil Company was considered a horizontal merger.

Accepted Answer

A horizontal merger is a merger between two companies in the same industry and at the same stage of production. Exxon and Mobil were both large oil companies operating in the same industry, therefore their merger was a horizontal one.

Question 17

Holding companies and their shareholders may be subject to triple taxation.

Accepted Answer

Holding companies may be subject to taxation at the corporate level, then at the holding company level, and finally at the shareholder level when dividends are distributed. This results in triple taxation.

Question 18

In a consolidation,two or more companies join together to form a new firm.

Accepted Answer

In a consolidation, two or more companies come together to form a new entity with shared ownership and control. It is also known as a merger.

Question 19

Large investment banks invariably provide higher quality service and advice than smaller,so-called boutique investment banks.

Accepted Answer

This statement is not necessarily true. While larger investment banks may have more resources and a wider range of services, boutique investment banks often specialize in certain sectors or industries and may provide more tailored and specialized advice. Both types of banks can provide high quality service and advice, and the choice between them may depend on the specific needs and preferences of the client.

Question 20

A vertical merger is one in which the merger participants are usually competitors.

Accepted Answer

A vertical merger involves companies at different stages of production in the same industry, not competitors.

Quiz 1: Introduction to Mergers, acquisitions, and Other Restructuring Activities