Question 1

How difficult is it for merger and acquisition strategies to create value, and which firms benefit the most from M&A activity?

Accepted Answer

The answer of How difficult is it for merger and...

Question 2

__________ refers to divestiture, spin-off, or some other means of eliminating businesses that are unrelated to a firm's core businesses.
A) Downsizing
B) Hostile takeovers
C) Shakeouts
D) Downscoping

Accepted Answer

Downscoping involves the process of divesting, spinning off, or eliminating businesses that are not related to a firm's core operations, allowing the firm to focus on its main areas of expertise.

Question 3

__________ is most often used when the short-term goal is to reduce debt costs.
A) Management buyout
B) Leveraged buyout
C) Downscoping
D) Downsizing

Accepted Answer

The answer of __________ is most often used when the...

Question 4

Whole-firm LBOs tend to result in all the following negative outcomes EXCEPT:
A) large debt and increased financial risk.
B) failure to invest in R&D.
C) risk-averse management.
D) inefficient operations.

Accepted Answer

The answer of Whole-firm LBOs tend to result in all...

Question 5

What is an LBO, and what have been the results of such activities?

Accepted Answer

The answer of What is an LBO, and what have...

Question 6

Failing to __________ appropriately will result in too many employees doing the same work and prevent the new firm from realizing the cost synergies it anticipated.
A) downsize
B) spin off
C) downscope
D) buy out

Accepted Answer

Downsizing is the process of reducing the number of employees to improve efficiency and cut costs, which is necessary to avoid redundancy and achieve cost synergies.

Question 7

What are the differences between downscoping and downsizing, and why is each used?

Accepted Answer

The answer of What are the differences between downscoping and...

Question 8

An investor is analyzing two firms in the same industry which are basically identical.She is looking for long-term performance from her investment.Both firms are undergoing restructuring.One firm is involved in substantial downsizing, and the other firm is undertaking aggressive downscoping.The investor should invest in the:
A) downscoping firm because the higher debt load will discipline managers to act in shareholders' best interests.
B) downscoping firm because this will cause the firm to refocus on its core business.
C) downsizing firm because it will be making decisions based on tactical strategies.
D) downsizing firm because it is eliminating employees who are essentially "dead weight" and are dragging down the firm's profitability.

Accepted Answer

Downscoping helps a firm refocus on its core business, which can lead to better long-term performance by concentrating resources and efforts on areas where the firm has competitive advantages.

Question 9

The term "leveraged" in leveraged buyouts refers to the:
A) firm's increased concentration on the firm's core competencies.
B) amount of new debt incurred in buying the firm.
C) fact that the employees are purchasing the firm for which they work.
D) process of removing the firm's stock from public trading.

Accepted Answer

In a leveraged buyout, the term "leveraged" refers to the use of a significant amount of borrowed money (debt) to finance the acquisition of a company.

Question 10

A leveraged buyout refers to a(n):
A) firm restructuring itself by selling off unrelated units of the company's portfolio.
B) firm pursuing its core competencies by seeking to build a top management team that comes from a similar background.
C) restructuring action whereby a party buys all of the assets of a business, financed largely with debt, and takes the firm private.
D) action where the management of the firm and/or an external party buys all of the assets of a business financed largely with equity.

Accepted Answer

A leveraged buyout (LBO) is a financial transaction in which a company is purchased using a significant amount of borrowed money, with the assets of the company being acquired often used as collateral for the loans. The goal is to take the company private.

Question 11

After a leveraged buyout, __________ typically occur(s).
A) selling of assets
B) further rounds of acquisitions
C) due diligence
D) private synergy

Accepted Answer

After a leveraged buyout, the company often sells off assets to pay down the debt incurred during the buyout process.

Question 12

__________ may be necessary because acquisitions create a situation in which the newly formed firm has excess capacity in organizational functions such as sales, manufacturing, distribution, and human resource management.
A) Management buyout
B) Leveraged buyout
C) Downsizing
D) Downscoping

Accepted Answer

Downsizing may be necessary because acquisitions often lead to excess capacity in various organizational functions, and reducing the workforce or resources can help align the firm's capacity with its operational needs.

Question 13

Ambrose is a scientist working for a pharmaceutical company.His company was acquired by a rival pharmaceutical company, and now it is involved in downsizing and downscoping.Ambrose is concerned about his job security, since he is actively involved in amateur sports in his community and does not wish to disrupt his current lifestyle.Ambrose's job will MOST likely be secure if:
A) Ambrose's research is in a non-core activity.
B) the acquisition has been financed by junk bonds.
C) Ambrose is in a position to take a poison pill.
D) Ambrose is a key employee in the firm's primary business.

Accepted Answer

Ambrose's job is most likely secure if he is a key employee in the firm's primary business, as companies typically retain essential personnel who contribute significantly to their core operations during downsizing.

Question 14

Magma, Inc., acquired Vulcan, Inc., three years ago.Effective integration of the two companies' culture was never achieved, and the two firms' assets were not complementary.It is very likely that Magma will:
A) go public through an IPO.
B) review the due diligence information collected before the acquisition.
C) restructure.
D) review its tactical-level strategies.

Accepted Answer

Magma is likely to restructure due to the ineffective integration and lack of complementary assets, which suggests that the acquisition did not achieve its intended strategic benefits.

Question 15

Compared with downsizing, __________ has (have) a more positive effect on firm performance.
A) reconfiguring
B) downscoping
C) leveraged buyouts
D) acquisitions

Accepted Answer

Downscoping, which involves divesting non-core businesses or assets, tends to have a more positive effect on firm performance as it allows the firm to focus on its core operations and improve efficiency.

Question 16

A leveraged buyout will often result in a short-term outcome of __________, which, in turn, leads to a long-term outcome of __________.
A) high debt costs; higher risk
B) high debt costs; higher performance
C) high debt costs; lower performance
D) Emphasis on strategic controls; higher risk

Accepted Answer

Leveraged buyouts involve taking on a large amount of debt to acquire a company, which can lead to high debt costs in the short term. This can put pressure on the company to improve its performance in order to meet its debt obligations, which can lead to higher performance in the long term.

Question 17

What is restructuring, and what are its common forms?

Accepted Answer

The answer of What is restructuring, and what are its...

Question 18

When substantial debt is used to finance acquisitions, firms with successful acquisitions:
A) seek financial slack.
B) avoid long-term investments
C) reduce the debt quickly.
D) restrict managerial discretion in the use of cash flow.

Accepted Answer

Firms with successful acquisitions often aim to reduce the debt quickly to improve their financial stability and reduce interest expenses.

Question 19

Which of the following is NOT a characteristic of a successful acquisition?
A) The acquiring firm has a large amount of financial slack.
B) The acquired and acquiring firms have complementary assets and/or resources.
C) Innovation and R&D investments continue as part of the firm's strategy.
D) Investments in advertising and image building are made quickly.

Accepted Answer

Successful acquisitions typically focus on integrating and leveraging complementary assets and resources, maintaining innovation, and ensuring financial stability. Quick investments in advertising and image building are not necessarily a characteristic of a successful acquisition, as they may not address the core strategic goals of the merger.

Question 20

Which of the following is NOT one of the three main restructuring strategies?
A) Realigning
B) Downsizing
C) Downscoping
D) Leveraged buyouts

Accepted Answer

Realigning is not considered one of the three main restructuring strategies, which typically include downsizing, downscoping, and leveraged buyouts.

Quiz 7: Merger and Acquisition Strategies

How difficult is it for merger and acquisition strategies to create value, and which firms benefit the most from M&A activity?

__________ refers to divestiture, spin-off, or some other means of eliminating businesses that are unrelated to a firm's core businesses.

__________ is most often used when the short-term goal is to reduce debt costs.

Whole-firm LBOs tend to result in all the following negative outcomes EXCEPT:

What is an LBO, and what have been the results of such activities?

Failing to __________ appropriately will result in too many employees doing the same work and prevent the new firm from realizing the cost synergies it anticipated.

What are the differences between downscoping and downsizing, and why is each used?

The term "leveraged" in leveraged buyouts refers to the:

A leveraged buyout refers to a(n) :

After a leveraged buyout, __________ typically occur(s) .

__________ may be necessary because acquisitions create a situation in which the newly formed firm has excess capacity in organizational functions such as sales, manufacturing, distribution, and human resource management.

Magma, Inc., acquired Vulcan, Inc., three years ago.Effective integration of the two companies' culture was never achieved, and the two firms' assets were not complementary.It is very likely that Magma will:

Compared with downsizing, __________ has (have) a more positive effect on firm performance.

A leveraged buyout will often result in a short-term outcome of , which, in turn, leads to a long-term outcome of .

What is restructuring, and what are its common forms?

When substantial debt is used to finance acquisitions, firms with successful acquisitions:

Which of the following is NOT a characteristic of a successful acquisition?

Which of the following is NOT one of the three main restructuring strategies?