Question 1

Due diligence includes all of the following activities EXCEPT assessing
A) differences in firm cultures.
B) tax consequences of the acquisition.
C) the level of private synergy between the two firms.
D) financing for intended transaction.

Accepted Answer

Due diligence includes assessing differences in firm cultures, tax consequences of the acquisition, and financing for intended transaction. The level of private synergy between the two firms is not typically assessed during due diligence, but rather during the integration process after the acquisition is complete.

Question 2

According to the Chapter 7 Strategic Focus, research suggests that emerging market firms tend to __________ than other firms and that government ownership of those firms leads to __________ for the acquisition.
A) pay a higher premium; overpayment
B) pay a lower premium; overpayment
C) pay a lower premium; underpayment
D) pay a higher premium; underpayment

Accepted Answer

The answer of According to the Chapter 7 Strategic Focus,...

Question 3

The factors that lead to poor long-term performance by acquisitions include all of the following EXCEPT firms
A) with insufficient diversification.
B) having too much debt.
C) being unable to achieve synergy.
D) growing too large.

Accepted Answer

Insufficient diversification is not a factor that typically leads to poor long-term performance by acquisitions. The other factors listed (too much debt, inability to achieve synergy, and growing too large) are all commonly cited reasons for poor performance of acquisitions.

Question 4

Because acquisitions may become a substitute for innovation, Teva Pharmaceutical's acquisition of Cephalon should be driven by ___________ rather than _________________.
A) defensive reasons (to gain sales revenue in the short run); strategic reasons (cost and revenue strategies)
B) both strategic and defensive reasons; either one or the other
C) strategic reasons; defensive reasons
D) avoiding internal R&D expenditures; developing innovation capabilities

Accepted Answer

The sentence suggests that Teva Pharmaceutical's acquisition of Cephalon should be driven by strategic reasons rather than defensive reasons to avoid acquisitions becoming a substitute for innovation. Therefore, the best choice is C, which states that the acquisition should be driven by strategic reasons rather than defensive reasons.

Question 5

Which of the following is NOT one of the primary reasons many pharmaceutical firms use acquisitions as exemplified by Teva's frendly acquisition of Cephalon?
A) entering markets quickly.
B) overcoming the high costs of internal product development.
C) improving predictability of returns on investment.
D) extending patent rights on developed pharmaceuticals.

Accepted Answer

Extending patent rights on developed pharmaceuticals is not one of the primary reasons many pharmaceutical firms use acquisitions. While patent extension may be a potential benefit of an acquisition, it is not one of the primary reasons as it is not always achievable or the main driver behind such deals. The primary reasons are often focused on entering new markets, overcoming high internal product development costs, and improving predictability of returns on investment.

Question 6

Compared to internal product development, acquisitions allow
A) immediate access to innovations in mature product markets.
B) more accurate prediction of return on investment.
C) slower market entry.
D) more effective use of company core competencies.

Accepted Answer

The answer of Compared to internal product development, acquisitions allow
A)...

Question 7

Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for
A) market discipline.
B) innovation.
C) risk analysis.
D) international diversification.

Accepted Answer

Acquisitions can provide a quick way to access new products or markets, but they are not a substitute for innovation. Relying solely on acquisitions to enter new markets can lead to a lack of internal innovation and a failure to stay competitive in the long run.

Question 8

Sales of watches among teenagers and 20-somethings are declining rapidly as this age group uses cellphones, iPods, and other devices to tell time. A company that specializes in selling inexpensive watches to this age group may wish to consider ____ in order to develop new products other than watches.
A) unrelated diversification.
B) backward integration.
C) forward integration.
D) horizontal acquisitions.

Accepted Answer

With the decline in sales of watches among teenagers and 20-somethings, it would be advantageous for the company to look for new opportunities to diversify their products. Unrelated diversification provides the opportunity for the company to explore new markets and product lines that are not directly related to their current business. This allows them to grow their business and revenue streams while reducing their dependence on the declining watch market. Additionally, this will help them adapt to changing consumer behavior and preferences. Backward integration involves acquiring suppliers or manufacturers, forward integration involves acquiring distributors or retailers, and horizontal acquisitions involve acquiring competitors in the same industry. None of these options address the problem of declining sales among their target market.

Question 9

Each of the following is a rationale for acquisitions EXCEPT
A) achieving greater market power.
B) overcoming significant barriers to entry.
C) increasing speed of market entry.
D) positioning the firm for a tactical competitive move.

Accepted Answer

All the other options are justifications for making an acquisition, but positioning the firm for a tactical competitive move is not a clear rationale on its own. It would need to be specified what the competitive move is and how the acquisition would support that strategy.

Question 10

The fastest and easiest way for a firm to diversity its portfolio of businesses is through acquisition because
A) of barriers to entry in many industries.
B) it is difficult and time intensive for companies to develop products that differ from their current product line.
C) innovation in both the acquired and the acquiring firm is enhanced by the exchange of competencies resulting from acquisition.
D) unrelated acquisitions are usually uncomplicated because the acquired firm is allowed to continue to function independently as it did before acquisition.

Accepted Answer

Acquiring an already established business allows for immediate diversification of the acquiring firm's portfolio without the time and resources needed to develop new products or enter new industries. The other options (A, C, and D) provide some benefits of acquisition, but they do not directly relate to the ease and speed of diversification.

Question 11

Research has shown that the more ____, the greater is the probability that an acquisition will be successful.
A) related the acquired and acquiring firms are
B) diverse the resulting portfolio of competencies
C) disparate the corporate cultures
D) involved investment banking firms are in the due diligence process

Accepted Answer

Research has shown that the more related the acquired and acquiring firms are, the greater is the probability that an acquisition will be successful. This is because related firms have a greater likelihood of complementarity and synergy, which can lead to improved performance and growth.

Question 12

The ____ phase is probably the single most important determinant of shareholder value creation in mergers and acquisitions.
A) pre-acquisition negotiations
B) pre-acquisition due diligence
C) post-acquisition integration
D) post-acquisition restructuring

Accepted Answer

Post-acquisition integration is the phase after the acquisition has taken place where the two companies are combined to form a cohesive entity. This phase is crucial to the success of the acquisition as the companies must be integrated in a way that maximizes the synergies that were identified during the pre-acquisition due diligence phase. If the integration is not successful, the anticipated synergies may not be realized, which can negatively impact shareholder value.

Question 13

A manager in your company is proposing the acquisition of Taylor Company, which has developed a new, innovative product instead of a strategy of developing new products in-house. All of the following arguments are correct EXCEPT
A) The acquisition of Taylor should be primarily for defensive rather than strategic reasons.
B) Research suggests that acquisition strategies are a common means of avoiding risky internal ventures.
C) The outcomes of acquisitions can be estimated more easily and accurately than the outcomes for an internal product development process.
D) Acquisitions could become a substitute for innovation within your firm.

Accepted Answer

The answer of A manager in your company is proposing...

Question 14

Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately _______ percent of innovations are imitated within four years after patents are obtained.
A) five
B) ten
C) sixty
D) twenty

Accepted Answer

The answer of Managers perceive internal product development as a...

Question 15

Pappelbon Enterprises recently acquired a chain of convenience stores offering both fuel and food. Pappelbon is now surprised and dismayed to find that the gas pumps have been poorly maintained and will need to be replaced at considerable expense. Each of the following statements accurately reflect this EXCEPT
A) Pappelbon did not fully evaluate the target.
B) Pappelbon overpaid.
C) Pappelbon's due diligence was not fully effective.
D) Pappelbon's management was overly focused on acquisitions.

Accepted Answer

The answer of Pappelbon Enterprises recently acquired a chain of...

Question 16

Internal product development is often viewed as
A) carrying a high risk of failure.
B) the only reliable method of generating new products for the firm.
C) a quicker method of product launch than acquisition of another firm.
D) critical to the success of biotech and pharmaceutical firms.

Accepted Answer

Internal product development carries a high risk of failure as it involves investing significant resources, time, and effort in research and development without the guarantee of success.

Question 17

Research shows that about ____ percent of mergers and acquisitions are successful.
A) 20
B) 40
C) 60
D) 80

Accepted Answer

The answer of Research shows that about ____ percent of...

Question 18

When a firm is overly dependent on one or more products or markets, and the intensity of rivalry in that market is intense, the firm may wish to ____ by making an acquisition.
A) increase new product speed to market
B) broaden its competitive scope
C) increase its economies of scale
D) overcome entry barriers

Accepted Answer

By broadening its competitive scope through acquisition, the firm can reduce its dependency on a single product or market and mitigate risks associated with intense rivalry.

Question 19

Without effective due diligence the
A) acquiring firm is likely to overpay for an acquisition.
B) firm may miss its opportunity to buy a well-matched company.
C) acquisition may deteriorate into a hostile takeover, reducing the value creating potential of the action.
D) firm may be unable to act quickly and decisively in purchasing the target firm.

Accepted Answer

The answer of Without effective due diligence the
A) acquiring firm...

Question 20

Problems associated with acquisitions include all of the following EXCEPT
A) Managers overly focused on acquisitions.
B) Integration difficulties.
C) Large or extraordinary debt.
D) Excessive time spent on the due diligence process.

Accepted Answer

Excessive time spent on the due diligence process is not typically considered a problem associated with acquisitions. In fact, a thorough due diligence process can help mitigate some of the other potential problems, such as integration difficulties and large amounts of debt. However, managers can become overly focused on acquisitions to the detriment of other important aspects of the business, and taking on too much debt or encountering integration difficulties can cause significant challenges for the acquiring company.

Quiz 7: Merger and Acquisition Strategies

Due diligence includes all of the following activities EXCEPT assessing

According to the Chapter 7 Strategic Focus, research suggests that emerging market firms tend to than other firms and that government ownership of those firms leads to for the acquisition.

The factors that lead to poor long-term performance by acquisitions include all of the following EXCEPT firms

Because acquisitions may become a substitute for innovation, Teva Pharmaceutical's acquisition of Cephalon should be driven by _ rather than _______.

Which of the following is NOT one of the primary reasons many pharmaceutical firms use acquisitions as exemplified by Teva's frendly acquisition of Cephalon?

Compared to internal product development, acquisitions allow

Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for

Each of the following is a rationale for acquisitions EXCEPT

The fastest and easiest way for a firm to diversity its portfolio of businesses is through acquisition because

Research has shown that the more ____, the greater is the probability that an acquisition will be successful.

The ____ phase is probably the single most important determinant of shareholder value creation in mergers and acquisitions.

A manager in your company is proposing the acquisition of Taylor Company, which has developed a new, innovative product instead of a strategy of developing new products in-house. All of the following arguments are correct EXCEPT

Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately _______ percent of innovations are imitated within four years after patents are obtained.

Internal product development is often viewed as

Research shows that about ____ percent of mergers and acquisitions are successful.

When a firm is overly dependent on one or more products or markets, and the intensity of rivalry in that market is intense, the firm may wish to ____ by making an acquisition.

Without effective due diligence the

Problems associated with acquisitions include all of the following EXCEPT