Question 1

A major impetus fueling financial mergers during the 1980s was

Accepted Answer

Ready availability of junk bond financing provided companies with easy access to large sums of capital, which they could use to finance mergers and acquisitions. This helped fuel the wave of financial mergers during the 1980s.

Question 2

When a firm undertakes a merger in order to eliminate redundant functions or increase market share, this is an example of

Accepted Answer

When a firm undertakes a merger in order to eliminate redundant functions or increase market share, it is a strategic merger. The primary goal is to improve the competitive position of the company and achieve greater efficiency and economies of scale through consolidation. Financial mergers, hostile takeovers, and friendly mergers may also involve some strategic considerations, but the focus is different. Financial mergers are primarily driven by financial gains, such as increased cash flow or reduced debt. Hostile takeovers involve the acquisition of a target company against its will, often for the purpose of gaining control or access to valuable assets. Friendly mergers are negotiated between the companies involved to achieve mutually beneficial goals, such as diversification or expansion into new markets.

Question 3

When a merger transaction is endorsed by the target firm's management, approved by its shareholders, and easily consummated, this is an example of

Accepted Answer

A friendly merger is a merger in which the target company's management endorses the deal, and the transaction is easily consummated with the approval of shareholders. Therefore, option C is the correct answer. A financial merger usually refers to a merger between two institutions, such as banks or insurance companies, for financial reasons. A hostile takeover occurs when a company tries to take over another company without the target company's consent. A strategic merger is a merger between two companies that have complementary business operations or resources.

Question 4

A hostile merger is typically accomplished through

Accepted Answer

A hostile merger is typically accomplished through a tender offer, which is a direct offer by the acquiring company to the shareholders of the target company to purchase their shares at a premium price. This bypasses the target company's management and board of directors, which may not be in favor of the merger. A cash purchase or exchange of stocks/bonds may also be involved in a hostile merger, but the primary means of carrying out the merger is through a tender offer.

Question 5

The ability to use the same sales and distribution channels to reach customers of both businesses is a benefit of

Accepted Answer

The answer of The ability to use the same sales...

Question 6

Typically, reasons for undertaking mergers are

Accepted Answer

The reasons for undertaking mergers can be both strategic and financial. Strategic reasons may include gaining market share or diversifying the product line, while financial reasons may include achieving cost savings or increasing revenue. Mergers can serve both of these purposes simultaneously, making choice C the most accurate. Wealth maximization is not necessarily in conflict with mergers, as mergers can lead to increased profits and shareholder value.

Question 7

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 8

Generally, a combination of two firms of unequal size is called

Accepted Answer

A merger is a combination of two firms of unequal size, where the smaller firm is absorbed by the larger firm. A consolidation refers to the combination of two or more firms into a new entity. A congeneric formation is a type of merger where two firms in the same or related industries combine. A holding company is a type of business entity that owns and controls other companies.

Question 9

One of the key motives for combinations is the tax benefit of

Accepted Answer

When one firm acquires another firm that has tax loss carryforwards, the acquiring firm can use those losses to offset its own taxable income, thereby reducing its tax liability. This is a significant tax benefit of combinations.

Question 10

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, also known as a leveraged buyout, is typically undertaken with the goal of restructuring the acquired company in order to improve its cash flow and unlock its hidden value. This often involves reducing costs, improving operational efficiency, and possibly selling off non-core assets. The primary focus is on improving the financial performance of the company in order to generate a good return on investment for the acquiring company or investor group.

Question 11

________ is achieved by acquiring a company in the same general industry, but neither in the same line of business nor a supplier or a customer.

Accepted Answer

A congeneric merger involves the acquisition of a company in the same general industry but not in the same line of business or a supplier or customer. This type of merger allows companies to expand their product offerings and diversify their operations while still remaining within their industry.

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

Greater control over the acquisition of raw materials or the distribution of finished goods is an economic benefit of

Accepted Answer

Vertical merger involves the consolidation of companies that are involved in different stages of the production process. By merging with a company in the supply chain, a firm can gain greater control over the acquisition of raw materials or the distribution of finished goods. Therefore, D is the correct answer.

Question 14

Most firms seeking merger partners will hire the services of

Accepted Answer

Firms seeking merger partners typically hire investment bankers because they have the expertise and connections to identify potential targets and negotiate deals on their behalf. Investment bankers also provide strategic advice on valuation, financing, and other aspects of the merger process. Commercial bankers may be involved in providing financing for the deal, but they do not typically lead the merger process. Investment brokers and private contractors are not typically involved in the merger process.

Question 15

When a merger transaction is not supported by the target firm's management, forcing the acquiring company to try to gain control of the firm by buying shares in the marketplace, this is an example of

Accepted Answer

This scenario is describing a hostile takeover, where the acquiring company is trying to gain control of the target firm without the support of its management. A financial merger involves combining companies purely for financial reasons, while a friendly merger occurs when both companies agree to merge. A strategic merger involves combining companies with complementary strengths and resources to create synergy.

Question 16

________ may result in expansion of operations in an existing product line and elimination of a competitor.

Accepted Answer

A horizontal merger occurs when two companies in the same industry merge with each other. This can result in the expansion of operations in an existing product line (as the combined company can offer a wider range of products), and may also eliminate a competitor if one of the merging companies was previously competing with the other.

Question 17

A friendly merger transaction is typically consummated through all of the following EXCEPT

Accepted Answer

A friendly merger transaction can be consummated through a cash purchase, an exchange of the acquirer's stock, or an exchange of the acquirer's stock and bonds. However, a tender offer is not typically used in friendly mergers as it is a more hostile means of acquiring a company.

Question 18

When a firm undertakes a merger to improve its sources and supply of raw materials, this is an example of a

Accepted Answer

A merger that aims to improve a firm's sources and supply of raw materials is a strategic merger. Strategic mergers are those that are made with the goal of improving the overall performance of the merged firms, such as increasing market share, reducing costs or improving production efficiency. Financial mergers are made to increase the financial performance of the merged firms, while hostile takeovers are made without the consent of the target firm's management, and friendly mergers are those that are made with the approval of both firms' management.

Question 19

All of the following are reasons for mergers EXCEPT

Accepted Answer

Monopoly control of the markets is not a reason for mergers. Mergers are typically undertaken to achieve economies of scale, reduce costs, or gain market share.

Question 20

A merger of a paper manufacturer and a logging company is an example of

Accepted Answer

A merger between a paper manufacturer and a logging company is an example of a vertical merger because the two companies operate at different stages in the production chain. The paper manufacturer buys raw materials from the logging company, making it a supplier for the paper manufacturer. A vertical merger occurs between two companies that operate at different stages in the production process.

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