Question 1

A combination of two or more companies that results in a firm maintaining the identity of one of the firms is ________.

Accepted Answer

A merger is the combination of two or more companies where one of the firms maintains its identity. In a consolidation, the merging firms cease to exist and a new entity is created. Amalgamation is a term used in accounting to describe the consolidation of financial statements of two or more organizations into a single set of financial statements. A holding company is a company that owns other companies' outstanding stock.

Question 2

Firms' motives to merge include growth or diversification, synergy, fund raising, tax considerations, and defense against takeover.

Accepted Answer

These are indeed common motives for firms to merge.

Question 3

A congeneric merger is a merger combining firms in unrelated businesses.

Accepted Answer

A congeneric merger is a merger combining firms in related businesses.

Question 4

A friendly merger is a ________.

Accepted Answer

A friendly merger is a merger transaction that is endorsed by the target firm's management, approved by its stockholders, and easily consummated. In other words, both parties agree to the merger and work together towards its completion. Option A represents a private placement of shares, which is not necessarily related to a friendly merger. Option B describes a hostile takeover attempt, which is the opposite of a friendly merger. Option D describes a situation where the target firm's management is resistant to the merger, which makes it a hostile takeover attempt rather than a friendly merger.

Question 5

Business combinations are used by firms to externally expand in order to increase ________.

Accepted Answer

Business combinations are a way for firms to acquire other businesses and their resources, including production capacity. This allows the acquiring company to increase their own production capacity, which can ultimately lead to increased revenue and profits. A and B are incorrect choices as they do not directly relate to the purpose of business combinations, and D is not always a desired outcome of external expansion.

Question 6

A congeneric merger is a merger in which a firm acquires a supplier or a customer.

Accepted Answer

A congeneric merger is a type of merger where two companies are in the same or related industries or markets but do not offer the same products. It is different from a vertical merger, where a firm acquires a supplier or a customer.

Question 7

A firm undertakes a merger in order to eliminate redundant functions or increase market share. This is an example of ________.

Accepted Answer

This is an example of a strategic merger, where companies combine forces to enhance their market position, streamline operations, and achieve synergies such as eliminating redundant functions or increasing market share.

Question 8

A horizontal merger is a merger in which one firm acquires another firm in the same general industry but neither in the same line of business nor a supplier or customer.

Accepted Answer

A horizontal merger involves the combination of two firms that are in the same line of business and operate in the same market, thereby directly competing with each other.

Question 9

The key benefit of a horizontal merger is its ability to reduce risk by merging firms that have different seasonal or cyclic patterns of sales and earnings.

Accepted Answer

A horizontal merger involves companies in the same industry, which typically aims to increase market share, reduce competition, or achieve economies of scale, rather than diversifying to reduce risk through different sales cycles.

Question 10

A corporation that has voting control of one or more other corporations is called a ________.

Accepted Answer

A holding company is a corporation that has voting control over one or more other corporations. Holding companies usually do not produce goods or services themselves but instead control and manage subsidiary companies that do.

Question 11

A conglomerate merger is a merger combining firms in unrelated businesses.

Accepted Answer

A conglomerate merger involves the merger of companies in unrelated industries or businesses.

Question 12

A vertical merger may result in expansion of operations in an existing product line and elimination of a competitor.

Accepted Answer

A vertical merger involves a company merging with a supplier or distributor, not a competitor, and is aimed at expanding control over the supply chain rather than eliminating competition in an existing product line.

Question 13

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

Accepted Answer

A strategic merger is aimed at improving a firm's performance by expanding its sources and supply of raw materials. A financial merger involves combining two firms for financial gains, a hostile takeover is an aggressive acquisition of another company, and a divestiture is when a firm sells off a part of its business to focus on core operations.

Question 14

Greater control over the acquisition of new materials or the distribution of finished goods is an economic benefit of horizontal merger.

Accepted Answer

A horizontal merger involves companies at the same stage of production in the same industry, which typically aims to increase market share, reduce competition, or achieve economies of scale, rather than controlling the acquisition of new materials or the distribution of finished goods, which is more related to vertical mergers.

Question 15

A combination of companies where the former corporations cease to exist is ________.

Accepted Answer

A consolidation is a combination of companies in which the former corporations cease to exist and a new entity is formed.

Question 16

A vertical merger is a merger of two firms in the same line of business.

Accepted Answer

A vertical merger involves companies at different stages of production in the same industry, such as a manufacturer merging with a supplier or distributor, not companies in the same line of business.

Question 17

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

A hostile takeover is a situation where the acquiring company tries to gain control of the target firm without the support of its management. This is typically done by buying shares in the marketplace or through a tender offer. The other choices do not fit the scenario described in the question. A financial merger is a type of merger where the primary goal is to achieve financial benefits through cost savings or increased efficiency. A congeneric formation involves the merging of two companies in the same or related industries. A strategic merger is a merger where the goal is to create synergy and gain a competitive advantage.

Question 18

A firm in a merger transaction that attempts to merge or takeover another company is called the ________.

Accepted Answer

The acquiring company is the firm in a merger transaction that attempts to merge or takeover another company. The target company is the company that is being acquired or taken over. The holding company is a type of parent company that holds stocks of other companies. The consolidated company is the result of the merger or acquisition, where the two companies combine to form a new entity.

Question 19

The combination of two or more companies to form a completely new corporation is a ________.

Accepted Answer

A consolidation is the combination of two or more companies to form a completely new corporation, with a new name, ownership, and management structure. A conglomerate merger involves the combination of unrelated businesses, a spin-off is the creation of a new company from a division or part of an existing company, and a congeneric formation involves the combination of companies in the same or related industries.

Question 20

A firm in a merger transaction that is being pursued as a takeover potential is called the ________.

Accepted Answer

The firm being pursued in a merger as a takeover potential is referred to as the target company. The acquiring company is the entity that seeks to acquire the target company, while a holding company is an entity that holds multiple subsidiary companies. A consolidated company refers to the resulting company after a merger or acquisition has taken place.

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