Question 1

All of the following are true of buyer due diligence except for

Accepted Answer

Buyer due diligence cannot be completely replaced by appropriate representations and warranties in the agreement of purchase and sale. While representations and warranties can provide some level of assurance, due diligence is necessary to verify information and identify potential risks or issues that may not be disclosed or covered by the agreement.

Question 2

There is no need for the seller to perform due diligence on its own operations to ensure that its representations and warranties in the definitive agreement are accurate.

Accepted Answer

The seller should perform due diligence on its own operations to ensure that its representations and warranties in the definitive agreement are accurate. This helps to avoid any potential breaches of contract and liability issues.

Question 3

Loan covenants are promises made by the borrower that certain acts will be performed and others will be avoided.

Accepted Answer

Loan covenants are indeed promises made by the borrower regarding certain actions that will or will not be taken, such as maintaining a certain credit rating or level of financial performance.

Question 4

All of the following statements are true about letters of intent except for

Accepted Answer

Letters of intent are not always legally binding. In fact, they are often considered to be non-binding, although certain provisions such as confidentiality and exclusivity may have legal implications.

Question 5

The purchase price may be fixed at the time of closing,subject to future adjustment,or it may be contingent on future performance of the target business.

Accepted Answer

The purchase price may be fixed at the time of closing, but it can also be subject to future adjustment or contingent on future performance of the target business.

Question 6

The negotiation process consists of all of the following concurrent activities except for

Accepted Answer

The negotiation process typically involves activities such as refining valuation, deal structuring, due diligence, and developing the financing plan. However, integration planning is not typically considered a concurrent activity during negotiations. It usually takes place after the negotiation process has concluded, as it involves planning for the integration of the two companies or entities after the deal has been finalized.

Question 7

Each of the following is true about the acquisition search process except for

Accepted Answer

The number of selection criteria should not be as lengthy as possible, but rather be carefully chosen to focus on the key factors that are most important for the acquirer's strategic objectives. Too many criteria can narrow the search too much, leading to a smaller pool of potential candidates.

Question 8

In a merger,the acquiring firm assumes all liabilities of the target firm.Assumed liabilities include all but which of the following?

Accepted Answer

Fully depreciated operating equipment is not a liability and therefore not assumed by the acquiring firm. The other options listed (current liabilities, long-term debt, warranty claims, and off-balance sheet liabilities) are all liabilities and would be assumed by the acquiring firm in a merger.

Question 9

Total consideration is a legal term referring to the composition of the purchase price paid by the buyer for the target firm.It may consist of which of the following:

Accepted Answer

Total consideration can consist of cash, stock, and debt, or any combination of these. Therefore, choices A, B, and C are all possible components of total consideration.

Question 10

The actual price paid by the buyer for the target firm is determined when

Accepted Answer

The actual price paid is typically determined as a result of the negotiation process, where both parties agree on the final terms and price.

Question 11

Which of the following is generally not true of a financing contingency?

Accepted Answer

The answer of Which of the following is generally not...

Question 12

Confidentiality agreements are rarely required when target and acquiring firms exchange information.

Accepted Answer

Confidentiality agreements are commonly required when target and acquiring firms exchange information to protect the sensitive information from being disclosed to competitors or the public.

Question 13

The financing plan may be affected by the discovery during due diligence of assets that can be sold to pay off debt accumulated to finance the transaction.

Accepted Answer

If assets are discovered during due diligence that can be sold to pay off debt, it could potentially reduce the amount of financing needed for the transaction and affect the financing plan.

Question 14

All of the following are true about a confidentiality agreement except for

Accepted Answer

A confidentiality agreement does not limit the use of information about the seller that is publicly available as it is already in the public domain and cannot be protected under a confidentiality agreement.

Question 15

Buyers generally want to complete due diligence on the seller as quickly as possible.

Accepted Answer

The answer of Buyers generally want to complete due diligence...

Question 16

The screening process represents a refinement of the search process and commonly utilizes which of the following as selection criteria

Accepted Answer

The screening process in business often uses a combination of criteria such as market share, product line, profitability, leverage, and growth rate to refine and select the best options. All the options listed are commonly used criteria in different combinations.

Question 17

Initial contact should be made through an intermediary as high up in the organization for which of the following firms

Accepted Answer

Large, publicly traded firms typically have more layers of hierarchy and decision-making processes, so it is important to make initial contact with someone who is high enough in the organization to have decision-making power and can connect you with the right people.

Question 18

Earnouts are generally very poor ways to create trust and often represent major impediments to the integration process.

Accepted Answer

Earnouts often result in conflicts and disagreement between the seller and buyer, leading to a lack of trust and poor integration. Therefore, they are not an effective way to create trust.

Question 19

Which of the following are commonly used sources of financing for M&A transactions?

Accepted Answer

All of the listed options of asset based lending, cash flow based lending, and seller financing are commonly used sources of financing for M&A transactions.

Question 20

The closing often involves getting all the necessary third-party consents and regulatory and shareholder approvals.

Accepted Answer

The statement is true. The closing of a business transaction often involves obtaining various approvals and consents from third parties, regulatory bodies, and shareholders.

Quiz 5: Implementation: Search Through Closing: Phases 3 to 10 of the Acquisition Process