Question 1

A takeover target's management will not support a proposed takeover due to a very high tender offer.

Accepted Answer

If the tender offer is very high, it is likely that the target's management may be interested in supporting the proposed takeover. However, there may be other factors that could influence their decision not to support the takeover, such as concerns about job losses, cultural fit, or other strategic considerations. Ultimately, the decision will depend on the specific circumstances of the proposed takeover and the interests of the target's management, shareholders, and other stakeholders.

Question 2

A tender offer is a formal offer to purchase a given number of shares of a firm's stock at a specified price.

Accepted Answer

This statement is true. A tender offer is a formal offer made by an individual or entity to purchase a specific number of shares of a company's stock at a predetermined price per share. Typically, this offer is made higher than the current market price, and the aim is to acquire a controlling interest in the targeted company.

Question 3

A holding company is a corporation which is controlled by one or more other corporations.

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 its own operations or manufacturing.

Question 4

A merger transaction endorsed by a target firm's management, approved by its stockholders, and easily consummated is called a friendly merger.

Accepted Answer

This statement accurately describes a friendly merger.

Question 5

In the broadest sense, activities involving expansion or contraction of a firm's operations or changes in its assets or ownership structure are called corporate restructuring.

Accepted Answer

Corporate restructuring refers to any major change made to a company's operations, assets, or ownership structure, including expansion or contraction of operations, mergers or acquisitions, divestitures of businesses, spin-offs, or reorganizations of the company's financial structure.

Question 6

Consolidation involves the combination of two or more firms, and the resulting firm maintains the identity of one of the firms.

Accepted Answer

Consolidation involves the combination of two or more firms, and the resulting firm creates a new identity, different from the identities of the firms that were merged. This is unlike amalgamation, where one of the firms maintains its identity.

Question 7

Strategic mergers seek to achieve various economies of scale by eliminating redundant functions, increasing market share, and improving raw material sourcing and finished product distribution.

Accepted Answer

This statement is true. Strategic mergers aim to achieve various economies of scale by reducing expenses and increasing efficiency through eliminating redundant functions, increasing market share, and improving raw material sourcing and finished product distribution.

Question 8

Subsidiary companies are corporations having no voting control on holding companies.

Accepted Answer

The answer of Subsidiary companies are corporations having no voting...

Question 9

A strategic merger is a merger transaction undertaken with the goal of restructuring the acquired company in order to improve its cash flow and unlock its hidden value.

Accepted Answer

A strategic merger is primarily aimed at achieving long-term strategic goals, such as entering new markets, acquiring new technologies, or achieving economies of scale, rather than solely focusing on restructuring for improved cash flow and unlocking hidden value.

Question 10

The companies controlled by a holding company are normally referred to as its subsidiaries.

Accepted Answer

This statement is true - companies controlled by a holding company are typically referred to as its subsidiaries.

Question 11

The overriding goal for merging is the maximization of the owners' wealth as reflected in the acquirer's share price.

Accepted Answer

The primary objective of mergers is to enhance shareholder value, which is reflected in the acquirer's share price. Thus, the statement is true.

Question 12

The synergy of mergers is the economies of scale resulting from the merged firm's lower overhead.

Accepted Answer

The statement correctly defines the synergy of mergers as the economies of scale resulting from the lower overhead of the combined firm.

Question 13

Tax loss carryforward benefits can be used in mergers.

Accepted Answer

Tax loss carryforward benefits can be used by a company in a merger to offset future taxable income and potentially reduce taxes owed. The acquiring company can often use the tax losses of the target company to reduce their taxable income and lower their tax liability.

Question 14

A merger occurs when two or more firms are combined to form a completely new corporation.

Accepted Answer

A merger occurs when two or more firms unite to operate under a single legal entity, not necessarily creating a completely new corporation.

Question 15

An acquisition of a "cash-rich" company immediately increases the acquiring firm's borrowing power by decreasing its financial leverage.

Accepted Answer

When an acquiring firm acquires a cash-rich company, it adds cash to its own balance sheet, which increases the firm's liquidity and decreases its financial leverage. This, in turn, makes it easier for the company to borrow more money in the future, as it is seen as less risky by lenders.

Question 16

Primary motives for merging include growth or diversification, synergy, fund raising, increased managerial skill or technology, tax considerations, increased ownership liquidity, and defense against takeovers.

Accepted Answer

These are the primary motives for merging as identified by business experts and scholars.

Question 17

A consolidated corporation has voting control of one or more other corporations.

Accepted Answer

The answer of A consolidated corporation has voting control of...

Question 18

A financial merger is a merger transaction undertaken to achieve economies of scale.

Accepted Answer

The answer of A financial merger is a merger transaction...

Question 19

Holding companies are corporations that have voting control of one or more other corporations and the companies they control are referred to as subsidiaries.

Accepted Answer

This statement is true. Holding companies are formed to control subsidiaries, which means they have a majority ownership and voting control over one or more other corporations.

Question 20

Financial mergers involve merging firms in order to achieve various economies of scale by eliminating redundant functions, increasing market share, and improving raw material sourcing and finished product distribution.

Accepted Answer

The answer of Financial mergers involve merging firms in order...

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