(Get Answer) – Solutions for ch 1 to 5) chapter 1: introduction to mergers and Chapter 1: Introduction to Mergers and Acquisitions1. Which of the following are generally considered restructuring activities?a. A mergerb. An acquisitionc. A divestitured. A consolidatione. All of the aboveAnswer:2. All of the following are considered business alliances except fora. Joint venturesb. Mergersc. Minority investmentsd. Franchisese. Licensing agreementsAnswer:3. Which of the following is an example of economies of scope?a. Declining average fixed costs due to increasing levels of capacity utilizationb. A single computer center supports multiple business unitsc. Amortization of capitalized softwared. The divestiture of a product linee. Shifting production from an underutilized facility to another to achieve a higher overall operating rate and shutting down the first facilityAnswer:4. A firm may be motivated to purchase another firm whenevera. The cost to replace the target firm’s assets is less than its market valueb. The replacement cost of the target firm’s assets exceeds its market valuec. When the inflation rate is acceleratingd. The ratio of the target firm’s market value is more than twice its book valuee. The market to book ratio is greater than one and increasingAnswer:5. Which of the following is true only of a consolidation?a. More than two firms are involved in the combinationb. One party to the combination disappearsc. All parties to the combination disappeard. The entity resulting from the combination assumes ownership of the assets and liabilities of the acquiring firm only.e. One company becomes a wholly owned subsidiary of the other.Answer:6. Which one of the following is not an example of a horizontal merger?a. NationsBank and Bank of America combineb. U.S. Steel and Marathon Oil combinec. Exxon and Mobil Oil combined. SBC Communications and Ameritech Communications combinee. Hewlett Packard and Compaq Computer combineAnswer:7. Buyers often prefer “friendly” takeovers to hostile ones because of all of the following except for:a. Can often be consummated at a lower priceb. Avoid an auction environmentc. Facilitate post-merger integrationd. A shareholder vote is seldom requirede. The target firm’s management recommends approval of the takeover to its shareholdersAnswer:8. Which of the following represent disadvantages of a holding company structure?a. Potential for triple taxationb. Significant number of minority shareholders may create contentious environmentc. Managers may have difficulty in making the best investment decisionsd. A, B, and Ce. A and C onlyAnswer:9. Which of the following are not true about ESOPs?a. An ESOP is a trustb. Employer contributions to an ESOP are tax deductiblec. ESOPs can never borrowd. Employees participating in ESOPs are immediately vestede. C and DAnswer:10. ESOPs may be used for which of the following?a. As an alternative to divestitureb. To consummate management buyoutsc. As an anti-takeover defensed. A, B, and Ce. A and B onlyAnswer:11. Which of the following represent alternative ways for businesses to reap some or all of the advantages of M&As?a. Joint ventures and strategic alliancesb. Strategic alliances, minority investments, and licensingc. Minority investments, alliances, and licensingd. Franchises, alliances, joint ventures, and licensinge. All of the aboveAnswer:12. Which of the following are often participants in the acquisition process?a. Investment bankersb. Lawyersc. Accountantsd. Proxy solicitorse. All of the aboveAnswer:13. The purpose of a “fairness” opinion from an investment bank isa. To evaluate for the target’s board of directors the appropriateness of a takeover offerb. To satisfy Securities and Exchange Commission filing requirementsc. To support the buyer’s negotiation effortd. To assist acquiring management in the evaluation of takeover targetse. A and BAnswer:14. Arbitrageurs often adopt which of the following strategies just before or just after a merger announcement?a. Buy the target firm’s stockb. Buy the target firm’s stock and sells the acquirer’s stock shortc. Buy the acquirer’s stock onlyd. Sell the target’s stock short and buys the acquirer’s stocke. Sell the target stock shortAnswer:15. Institutional investors in private companies often have considerable influence approving or disapproving proposed mergers. Which of the following are generally not considered institutional investors?a. Pension fundsb. Insurance companiesc. Bank trust departmentsd. United States Treasury Departmente. Mutual fundsAnswer:16. Which of the following are generally not considered motives for mergers?a. Desire to achieve economies of scaleb. Desire to achieve economies of scopec. Desire to achieve antitrust regulatory approvald. Strategic realignmente. Desire to purchase undervalued assetsAnswer:17. Which of the following are not true about economies of scale?a. Spreading fixed costs over increasing production levelsb. Improve the overall cost position of the firmc. Most common in manufacturing businessesd. Most common in businesses whose costs are primarily variablee. Are common to such industries as utilities, steel making, pharmaceutical, chemical and aircraft manufacturingAnswer:18. Which of the following is not true of financial synergy?a. Tends to reduce the firm’s cost of capitalb. Results from a better matching of investment opportunities available to the firm with internally generated fundsc. Enables larger firms to experience lower average security underwriting costs than smaller firmsd. Tends to spread the firm’s fixed expenses over increasing levels of productione. A and BAnswer:19. Which of the following is not true of unrelated diversification?a. Involves buying firms outside of the company’s primary lines of businessb. Involves shifting from a firm’s core product lines into those which are perceived to have higher growth potentialc. Generally results in higher returns to shareholdersd. Generally requires that the cash flows of acquired businesses are uncorrelated with those of the firm’s existing businessese. A and D onlyAnswer:20. Which of the following is not true of strategic realignment?a. May be a result of industry deregulationb. Is rarely a result of technological changec. Is a common motive for M&Asd. A and C onlye. Is commonly a result of technological changeAnswer:21. The hubris motive for M&As refers to which of the following?a. Explains why mergers may happen even if the current market value of the target firm reflects its true economic valueb. The ratio of the market value of the acquiring firm’s stock exceeds the replacement cost of its assetsc. Agency problemsd. Market powere. The Q ratioAnswer:22. Around the announcement date of a merger or acquisition, abnormal returns to target firm shareholders normally averagea. 10%b. 30%c. –3%d. 100%e. 50%Answer:23. Around the announcement date of a merger, acquiring firm shareholders normally earna. 30% positive abnormal returnsb. –20% abnormal returnsc. Zero to slightly negative returnsd. 100% positive abnormal returnse. 10% positive abnormal returnsAnswer:24. Which of the following is the most common reason that M&As often fail to meet expectations?a. Overpaymentb. Form of paymentc. Large size of target firmd. Inadequate post-merger due diligencee. Poor post-merger communicationAnswer:25. Post-merger financial performance of the new firm is often about the same as which of the following?a. Joint venturesb. Strategic alliancesc. Licensesd. Minority investmentse. All of the aboveAnswer:Chapter 2 Regulatory Considerations1. In determining whether a proposed transaction is anti-competitive, U.S. regulators look at all of the following except fora. Market share of the combined businessesb. Potential for price fixingc. Ease of new competitors to enter the marketd. Potential for job loss among target firm’s employeese. The potential for the target firm to fail without the takeoverAnswer:2. Which of the following is among the least regulated industries in the U.S.a. Defensesb. Communicationsc. Retailingd. Public utilitiese. BankingAnswer:3. All of the following are true of the Williams Act except fora. Consists of a series of amendments to the 1934 Securities Exchange Actb. Facilitates rapid takeovers over target companiesc. Requires investors acquiring 5% or more of a public company to file a 13(d) with the SECd. Firms undertaking tender offers are required to file a 14(d)-1 with the SECe. Acquiring firms initiating tender offers must disclose their intentions and business plansAnswer:4. The Securities Act of 1933 requires the registration of all securities issued to the public. Such registration requires which of the following disclosures:a. Description of the firm’s properties and businessb. Description of the securitiesc. Information about managementd. Financial statements audited by public accountantse. All of the above.Answer:5. All of the following is true about proxy contests except fora. Proxy materials must be filed with the SEC immediately following their distribution to investorsb. The names and interests of all parties to the proxy contest must be disclosed in the proxy materialsc. Proxy materials may be distributed by firms seeking to change the composition of a target firm’s board of directorsd. Proxy materials may be distributed by the target firm seeking to influence how their shareholders vote on a particular proposale. Target firm proxy materials must be filed with the SEC.Answer:6. The purpose of the 1968 Williams Act was toa. Give target firm shareholders time to review takeover proposalsb. Prosecute target firm shareholders who misuse informationc. Protect target firm employees from layoffsd. Prevent tender offerse. Promote tender offersAnswer:7. Which of the following represent important shortcomings of using industry concentration ratios to determine whether the combination of certain firms will result in an increase in market power?a. Frequent inability to define what constitutes an industryb. Failure to measure ease of entry or exit for other firmsc. Failure to account for foreign competitiond. Failure to account properly for the distribution of firms of different sizese. All of the aboveAnswer:8. In a tender offer, which of the following is true?a. Both acquiring and target firms are required to disclose their intentions to the SECb. The target’s management cannot advise its shareholders how to respond to a tender offer until has disclosed certain information to the SECc. Information must be disclosed only to the SEC and not to the exchanges on which the target’s shares are tradedd. A and Be. A, B, and CAnswer:9. Which of the following are true about the Sherman Antitrust Act?a. Prohibits business combinations that result in monopolies.b. Prohibits business combinations resulting in a significant increase in the pricing power of a single firm.c. Makes illegal all contracts unreasonably restraining trade.d. A and C onlye. A, B, and CAnswer:10. All of the following are true of the Hart-Scott-Rodino Antitrust Improvements Act except fora. Acquisitions involving firms of a certain size cannot be completed until certain information is supplied to the FTCb. Only the acquiring firm is required to file with the FTCc. An acquiring firm may agree to divest certain businesses following the completion of a transaction in order to get regulatory approval.d. The Act is intended to give regulators time to determine whether the proposed combination is anti- competitive.e. The FTC may file a lawsuit to block a proposed transactionAnswer:11. All of the following are true of antitrust lawsuits except fora. The FTC files lawsuits in most cases they review.b. The FTC reviews complaints that have been recommended by its staff and approved by the FTCc. FTC guidelines commit the FTC to make a final decision within 13 months of a complaintd. As an alternative to litigation, a company may seek to negotiate a voluntary settlement of its differences with the FTC.e. FTC decisions can be appealed in the federal circuit courts.Answer:12. All of the following are true about a consent decree except fora. Requires the merging parties to divest overlapping businessesb. An acquirer may seek to negotiate a consent decree in advance of consummating a deal.c. In the absent of a consent decree, a buyer usually makes the receipt of regulatory approval necessary to closing the deal.d. FTC studies indicate that consent decrees have historically been largely ineffectual in promoting competitione. Consent decrees tend to be most effective in promoting competition if the divestitures made by the acquiring firms are to competitors.Answer:13. U.S. antitrust regulators are most concerned about what types of transaction?a. Vertical mergersb. Horizontal mergersc. Alliancesd. Joint venturese. Minority investmentsAnswer:14. Which of the following are used by antitrust regulators to determine whether a proposed transaction will be anti-competitive?a. Market shareb. Barriers to entryc. Number of substitute productsd. A and B onlye. A, B, and CAnswer:15. European antitrust policies differ from those in the U.S. in what important way?a. They focus on the impact on competitorsb. They focus on the impact on consumersc. They focus on both consumers and competitorsd. They focus on supplierse. They focus on consumers, suppliers, and competitorsAnswer:16. Which other types of legislation can have a significant impact on a proposed transaction?a. State anti-takeover lawsb. State antitrust lawsc. Federal benefits lawsd. Federal and state environmental lawse. All of the aboveAnswer:17. State “blue sky” laws are designed toa. Allow states to block M&As deemed as anticompetitiveb. Protect individual investors from investing in fraudulent securities’ offeringsc. Restrict foreign investment in individual statesd. Protect workers’ pensionse. Prevent premature announcement of M&AsAnswer:18. All of the following are examples of antitakeover provisions commonly found in state statutes except fora. Fair price provisionsb. Business combination provisionsc. Cash-out provisionsd. Short-form merger provisionse. Share control provisionsAnswer:19. A collaborative arrangement is a term used by regulators to describe agreements among competitors for all of the following except fora. Joint venturesb. Strategic alliancesc. Mergers and acquisitionsd. A & B onlye. A & C onlyAnswer:20. Vertical mergers are likely to be challenged by antitrust regulators for all of the following reasons except fora. An acquisition by a supplier of a customer prevents the supplier’s competitors from having access to the customer.b. The relevant market has few customers and is highly concentratedc. The relevant market has many suppliers.d. The acquisition by a customer of a supplier could become a concern if it prevents the customer’s competitors from having access to the supplier.e. The suppliers’ products are critical to a competitor’s operationsAnswer:21. All of the following are true of the U.S. Foreign Corrupt Practices Act except for which of the following:a. The U.S. law carries anti-bribery limitations beyond U.S. political boundaries to within the domestic boundaries of foreign states.b. This Act prohibits individuals, firms, and foreign subsidiaries of U.S. firms from paying anything of value to foreign government officials in exchange for obtaining new business or retaining existing contracts.c. The Act permits so-called facilitation payments to foreign government officials if relatively small amounts of money are required to expedite goods through foreign custom inspections, gain approvals for exports, obtain speedy passport approvals, and related considerations.d. The payments described in c above are considered legal according to U.S. law and the laws of countries in which such payments are considered routinee. Bribery is necessary if a U.S. company is to win a contract that comprises more than 10% of its annual sales.Answer:22. Foreign direct investment in U.S. companies that may threaten national security is regulated by which of the following:a. Hart-Scott-Rodino Antitrust Improvements Actb. Defense Production Actc. Sherman Actd. Federal Trade Commission Acte. Clayton ActAnswer:23. A diligent buyer must ensure that the target is in compliance with the labyrinth of labor and benefit laws, including those covering all of the following except fora. Sexual harassmentb. Age discrimination,c. National securityd. Drug testinge. Wage and hour laws.Answer:24. All of the following factors are considered by U.S. antitrust regulators except fora. Market shareb. Potential adverse competitive effectsc. Barriers to entryd. Purchase price paid for the target firme. Efficiencies created by the combinationAnswer:25. The Sarbanes-Oxley bill is intended to achieve which of the following:a. Auditor independenceb. Corporate responsibilityc. Improved financial disclosured. Increased penalties for fraudulent behaviore. All of the aboveAnswer:Chapter 3: The Corporate Takeover Market:Common Takeover Tactics, Anti-Takeover Defenses, and Corporate Governance1. All of the following are commonly used takeover tactics, except fora. Poison pillsb. Bear hugc. Tender offerd. Proxy conteste. LitigationAnswer:2. According to the management entrenchment theory,a. Management resistance to takeover attempts is an attempt to increase the proposed purchase price premiumb. Management resistance to takeover attempts is an attempt to extend their longevity with the target firmc. Shareholders tend to benefit when management resists takeover attemptsd. Management attempts to maximize shareholder valuee. Describes the primary reason takeover targets resist takeover bidsAnswer:3. Which of the following factors often affects hostile takeover bids?a. The takeover premiumb. The composition of the board of the target firmc. The composition of the ownership of the target’s stockd. The target’s bylawse. All of the aboveAnswer:4. All of the following are true of a proxy contest except fora. Are usually successfulb. Are sometimes designed to replace members of the boardc. Are sometimes designed to have certain takeover defenses removedd. May enable effective control of a firm without owning 51% of the voting stocke. Are often costlyAnswer:5. Purchasing the target firm’s stock in the open market is a commonly used tactic to achieve all of the following except fora. Acquiring a controlling interest in the target firm without making such actions public knowledge.b. Lowering the average cost of acquiring the target firm’s sharesc. Recovering the cost of an unsuccessful takeover attemptd. Obtaining additional voting rights in the target firme. Strengthening the effectiveness of proxy contestsAnswer:6. All of the following are true of tender offers except fora. Tender offers consist only of offers of cash for target stockb. Are generally considered an expensive takeover tacticc. Are extended for a specific period of timed. Are sometimes over subscribede. Must be filed with the SECAnswer:7. Which of the following are common takeover tactics?a. Bear hugsb. Open market purchasesc. Tender offersd. Litigatione. All of the aboveAnswer:8. All of the following are common takeover defenses except fora. Poison pillsb. Litigationc. Tender offersd. Staggered boardse. Golden parachutesAnswer:9. All of the following are true of poison pills except fora. They are a new class of securityb. Generally prevent takeover attempts from being successfulc. Enable target shareholders to buy additional shares in the new company if an unwanted shareholder’s ownership exceeds a specific percentage of the target’s stockd. Delays the completion of a takeover attempte. May be removed by the target’s board if an attractive bid is received from a so-called “white knight.”Answer:10. The following takeover defenses are generally put in place by a firm before a takeover attempt is initiated.a. Standstill agreementsb. Poison pillsc. Recapitalizationd. Corporate restructuringe. GreenmailAnswer:11. The following takeover defenses are generally put in place by a firm after a takeover attempt is underway.a. Staggered boardb. Standstill agreementc. Supermajority provisiond. Fair price provisione. ReincorporationAnswer:12. Which of the following is true about so-called shark repellants?a. They are put in place to strengthen the boardb. They include poison pillsc. Often consist of the right to issue greenmaild. Involve White Knightse. Involve corporate restructuringAnswer:13. Which of the following is true? A hostile takeover attempta. Is generally found to be illegalb. Is one that is resisted by the target’s managementc. Results in lower returns to the target firm’s shareholders than a friendly attemptd. Usually successfule. Supported by the target firm’s board and its managementAnswer:14. Which is true of the following? A white knighta. Is a group of dissident shareholders which side with the bidding firmb. Is a group of the target firm’s current shareholders which side with managementc. Is a third party that is willing to acquire the target firm at the same price as the bidder but usually removes the target’s managementd. Is a firm which is viewed by management as a more appropriate suitor than the biddere. Is a firm that is willing to acquire only a large block of stock in the target firmAnswer:15. Which of the following is true about supervoting stock?a. Is a commonly used takeover tactic.b. Is generally encouraged by the SECc. May have 10 to 100 times of the voting rights of other classes of stockd. Is issued to acquiring firms if they agree not to purchase a controlling interest in the target firme. Is a widely used takeover defenseAnswer:16. Which of the following factors influences corporate governance practices?a. Securities legislationb. Government regulatory agenciesc. The threat of a hostile takeoverd. Institutional activisme. All of the aboveAnswer:17. Which of the following are commonly considered alternative models of corporate governance?a. Market modelb. Control modelc. Takeover modeld. A & B onlye. A & C onlyAnswer:18. The market governance model is applicable when which of the following conditions are true?a. Capital markets are liquidb. Equity ownership is widely dispersedc. Ownership and control are separated. Board members are largely independente. All of the aboveAnswer:19. The control market is applicable when which of the following conditions are true?a. Capital markets are illiquidb. Equity ownership is heavily concentratedc. Board members are largely insidersd. Ownership and control overlape. All of the above`Answer:20. The control model of corporate governance is applicable under all of the following conditions except fora. Capital markets are illiquidb. Board members are largely insidersc. Ownership and control overlapd. Equity ownership is widely dispersede. A, B, & D onlyAnswer:21. Which of the following are the basic principles on which the market model is based?a. Management incentives should be aligned with those of shareholders and other major stakeholdersb. Transparency of financial statementsc. Equity ownership should be widely dispersedd. A & B onlye. A, B, and C onlyAnswer:22. Which of the following statements best describes the business judgment rule?a. Board members are expected to conduct themselves in a manner that could reasonably be seen as being in the best interests of the shareholders.b. Board members are always expected to make good decisions.c. The courts are expected to “second guess’ decisions made by corporate boards.