Question 1

The combination of two or more companies that results in one of the corporations having a voting control of one or more of the other companies is a ________.

Accepted Answer

A holding company is a type of firm that owns enough voting stock in another company to control its policies and management decisions, but does not engage in their day-to-day operations, fitting the description given.

Question 2

An attempt to gain control of a target firm by buying sufficient shares of it in the marketplace is known as a ________ and is typically accomplished through a ________.

Accepted Answer

The attempt to gain control of a target firm by buying sufficient shares of it in the marketplace is known as a takeover. If it's not a friendly acquisition, but rather one that is contested by the target firm's management, it's known as a hostile takeover. Tender offer is a type of hostile takeover where the acquiring company directly offers to buy the shares of the target firm's shareholders at a premium price. Therefore, the correct answer is D.

Question 3

A financial merger is undertaken to ________.

Accepted Answer

The answer of A financial merger is undertaken to ________.
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Question 4

A(n) ________ is undertaken with the goal of restructuring the acquired company in order to improve its cash flow and unlock its hidden value.

Accepted Answer

A financial merger is specifically undertaken with the goal of restructuring the acquired company in order to improve its cash flow and unlock its hidden value. This differs from operating mergers, which primarily aim to create synergies and efficiencies through combining operations, and from strategic mergers, which are often driven by the desire to expand market share or diversify into new product areas. A hostile takeover refers to an acquisition in which the acquiring company does not have the support or cooperation of the target company's management or board of directors, and instead tries to obtain control of the company through direct purchase of shares or other means.

Question 5

A hostile merger is accomplished through ________.

Accepted Answer

A hostile merger is typically accomplished through a tender offer, where the acquiring company offers to buy shares of the target company directly from its shareholders, bypassing the target company's management. This allows the acquiring company to gain control of the target company even if its management does not support the merger. Cash purchases of stock and leveraged buyouts are other methods of acquiring a company, but they are not necessarily hostile in nature. Divestitures, on the other hand, involve selling off parts of a company rather than acquiring another company.

Question 6

Which of the following is a reason for undertaking mergers?

Accepted Answer

Mergers are undertaken for various reasons, including wealth maximization, which involves increasing the overall value of the combined entity for shareholders.

Question 7

The overriding goal for merging is to ________.

Accepted Answer

The main goal of mergers is to maximize the wealth of the acquirer's shareholders. This is usually accomplished by increasing the company's market share, diversifying its product line, or reducing operating costs, which ultimately lead to an increase in the share price. While monopolistic control may be a byproduct of a successful merger, it is not the primary goal. Increasing the dividend payout is not necessarily the focus of mergers, as the company may need to reinvest profits for growth.

Question 8

The acquisition of a "cash-rich" company allows the acquiring company ________.

Accepted Answer

Acquiring a "cash-rich" company can help the acquiring company reduce its leverage by using the cash to pay down debt, thereby increasing its borrowing power.

Question 9

Motive for merging includes ________.

Accepted Answer

Motive for merging includes increased liquidity which means that the merged company would have more cash on hand and a stronger position to pay debts and invest in growth opportunities. Options A, B and C are not correct because they do not provide any benefits for the merged company's financial situation.

Question 10

One of the key motives for mergers is ________.

Accepted Answer

Taking advantage of the other firm's tax loss carryforward can result in significant tax savings for the merged company. This occurs when the target firm has incurred losses in previous years and has carried them forward to offset future profits. By merging with this firm, the acquiring company can use these losses to reduce their taxable income and ultimately pay less in taxes.

Question 11

A merger involving the purchase of a specific product line, rather than the whole company is ________.

Accepted Answer

The answer of A merger involving the purchase of a...

Question 12

A ________ occurs when the operations of the acquiring and target firms are combined in order to achieve economies and thereby cause the performance of the merged firm to exceed that of the pre-merged firm.

Accepted Answer

The answer of A ________ occurs when the operations of...

Question 13

Which of the following is true of a conglomerate merger?

Accepted Answer

A conglomerate merger involves the combination of firms in unrelated businesses. The other options describe different types of mergers. A vertical merger (A) involves acquiring a supplier or a customer, a conglomerate merger (B) involves unrelated businesses, a lateral merger (C) involves acquiring a firm in the same general industry but not in the same line of business, and an horizontal merger (D) results in the expansion of a firm's operations in a given product line and eliminates a competitor.

Question 14

The combination of a dress manufacturer and a credit bureau is an example of ________.

Accepted Answer

A conglomerate merger is a combination of two companies that operate in entirely different industries, which is the case with a dress manufacturer and a credit bureau.

Question 15

A ________ results from the combination of firms in the same line of business.

Accepted Answer

A horizontal merger refers to the combination of firms in the same line of business. A congeneric merger involves firms in related but distinct industries, while conglomerate diversification refers to the combination of firms in unrelated industries. A hostile takeover involves the acquisition of a target company by another company without the target's approval.

Question 16

A major impetus fueling financial mergers during the 1980s was ________.

Accepted Answer

The ready availability of junk bond financing, which allowed companies to easily obtain capital for mergers and acquisitions, was a major driving force behind financial mergers during the 1980s.

Question 17

Which of the following is a reason for mergers?

Accepted Answer

Mergers can provide companies with increased managerial skills by combining the expertise and strengths of both organizations' management teams.

Question 18

Which of the following is true of a horizontal merger?

Accepted Answer

A horizontal merger is a type of merger where two companies operating in the same industry or line of business merge to form a larger entity. The key benefit of a horizontal merger is synergies resulting from combining two similar businesses. These synergies can be achieved through economies of scale, increased market share, and reduced competition. Therefore, option C is the correct choice. The other options do not accurately describe a horizontal merger.

Question 19

A ________ is when a firm acquires a supplier or a customer.

Accepted Answer

A vertical merger occurs when a firm acquires a supplier (upstream) or a customer (downstream), integrating different stages of production or distribution.

Question 20

A friendly merger transaction ________.

Accepted Answer

A friendly merger transaction can be achieved through an exchange of the acquirer's stock and cash, as both parties involved are willing to engage in the transaction. It does not necessarily require forceful acquisition or the purchase of outstanding bonds. While a public announcement is often made for transparency and legal requirements, this is not the defining characteristic of a friendly merger transaction.

Quiz 18: Mergers, Lbos, Divestitures, and Business Failure