Professional Documents
Culture Documents
Measures and Acquisition
Measures and Acquisition
Measures and Acquisition
Uttar Pradesh
India 201303
ASSIGNMENTS
PROGRAM: MFC
SEMESTER-IV
Subject Name
Study COUNTRY
Roll Number (Reg.No.)
Student Name
INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C
DETAILS
Five Subjective Questions
Three Subjective Questions + Case Study
Objective or one line Questions
MARKS
10
10
10
b)
c)
d)
e)
Signature :
Date
:
_________________________________
_________________________________
This private equity approach is associated with providing funding to new companies with high
growth potential, often in new and/or high tech industries.
Some VC investment characteristics:
The risk/reward tradeoff can be difficult to assess, but a private equity fund typically
generates most of its returns from a small number of big successes.
The general partner typically gets carried interest.
The exit timing can be difficult to know
A mutual fund whose aim is to achieve capital appreciation by investing in growth stocks. They
focus on companies that are experiencing significant earnings or revenue growth, rather than
companies that pay out dividends. The hope is that these rapidly growing companies will
continue to increase in value, thereby allowing the fund to reap the benefits of large capital gains.
In general, growth funds are more volatile than other types of funds, rising more than other funds
in bull markets and falling more in bear markets
Q.2 what do you mean by corporate control? Explain the how shares buy back work out?
Corporate control" refers to the authority to make the decisions of a corporation regarding
operations and strategic planning, including capital allocations, acquisitions and divestments, top
personnel decisions, and major marketing, production, and financial decisions. This concept is
frequently applied to publicly traded companies, which may be susceptible to changes in
corporate control when large investors or other companies seek to wrest control from managers
or other shareholders.
The notion of corporate control is similar to that of corporate governance; however, it is usually
used in a narrower sense. Corporate control is concerned with who hasand, moreover, who
exercisesthe ultimate authority over significant corporate practices. Governance, by contrast,
involves the broader inter workings of the day-to-day management, the board of directors, the
shareholders at large, and other interested parties to formulate and implement corporate strategy.
Q.3 Write notes on the following:A) Split off.
B) Amalgamation.
Amalgamation is the combination of one or more companies into a new entity. An amalgamation
is distinct from a merger because neither of the combining companies survives as a legal entity.
Rather, a completely new entity is formed to house the combined assets and liabilities of both
companies.
C) Hostile Takeover Bid.
A hostile takeover is the acquisition of one company (called the target company) by another
(called the acquirer) that is accomplished not by coming to an agreement with the target
company's management, but by going directly to the company's shareholders or fighting to
replace management in order to get the acquisition approved. A hostile takeover can be
Vertical Mergers
A vertical merger is done with an aim to combine two companies that are in the same value chain
of producing the same good and service, but the only difference is the stage of production at
which they are operating. For example, if a clothing store takes over a textile factory, this would
be termed as vertical merger, since the industry is same, i.e. clothing, but the stage of production
is different: one firm is works in territory sector, while the other works in secondary sector.
These kinds of merger are usually undertaken to secure supply of essential goods, and avoid
disruption in supply, since in the case of our example, the clothing store would be rest assured
that clothes will be provided by the textile factory. It is also done to restrict supply to
competitors, hence a greater market share, revenues and profits. Vertical mergers also offer cost
saving and a higher margin of profit, since manufacturers share is eliminated.
Concentric Mergers
Concentric mergers take place between firms that serve the same customers in a particular
industry, but they dont offer the same products and services. Their products may be
complements, product which go together, but technically not the same products. For example, if
a company that produces DVDs mergers with a company that produces DVD players, this would
be termed as concentric merger, since DVD players and DVDs are complements products, which
are usually purchased together. These are usually undertaken to facilitate consumers, since it
would be easier to sell these products together. Also, this would help the company diversify,
hence higher profits. Selling one of the products will also encourage the sale of the other, hence
more revenues for the company if it manages to increase the sale of one of its product. This
would enable business to offer one-stop shopping, and therefore, convenience for consumers.
The two companies in this case are associated in some way or the other. Usually they have the
production process, business markets or the basic technology in common. It also includes
extension of certain product lines. These kinds of mergers offer opportunities for businesses to
venture into other areas of the industry reduce risk and provide access to resources and markets
unavailable previously.
Conglomerate Merger
When two companies that operates in completely different industry, regardless of the stage of
production, a merger between both companies is known as conglomerate merger. This is usually
done to diversify into other industries, which helps reduce risks.
Q.6 what are the advantage of disinvestment in the Public Sector Units?
Advantages
1.To achieve greater inflow of private capital
E.g. This revenue can be used to compensate the deficit finance.
2. Allows new firms to enter into the market and thus increases competition
3. Brings the low productivity PSUs back on track thereby improving the quality of goods,
eliminating excessive manpower utilization and enabling high profits.
Assignment B
Q.7 Explain the Discounted Cash Flow method in details, with the help of suitable
example?
A discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an
investment opportunity. DCF analysis uses future free cash flow projections and discounts them
to arrive at a present value estimate, which is used to evaluate the potential for investment. If the
value arrived at through DCF analysis is higher than the current cost of the investment, the
opportunity may be a good one.
Calculated as:
Say that you estimate that Company X's cash flow will grow by 10% in the first two years, then
5% in the following three. After a few years, you may apply a long-term cash flow growth rate,
representing an assumption of annual growth from that point on. This value should probably not
exceed the long-term growth prospects of the overall economy by too much; we will say that
Company X's is 3%. You will then calculate a WACC; say it comes out to 8%. The terminal
value, or long-term valuation the company's growth approaches, is calculated using the Gordon
Growth Model:
Terminal value = projected cash flow for final year (1 + long-term growth rate) / (discount rate long-term growth rate)
Now you can estimate the cash flow for each period, including the the terminal value:
Year 1
= 50 * 1.10
55
Year 2
= 55 * 1.10
60.5
Year 3
= 60.5 * 1.05
63.53
Year 4
= 63.53 * 1.05
66.70
Year 5
= 66.70 * 1.05
70.04
Terminal value
1,442.75
Finally, to calculate Company X's discounted cash flow, you add each of these projected cash
flows, adjusting them for present value using the WACC:
DCFCompany X = (55 / 1.081) + (60.5 / 1.082) + (63.53 / 1.083) + (66.70 / 1.084) + (70.04 / 1.085) +
(1,442.75 / 1.085) = 1231.83
$1.23 b is our estimate of Company X's present enterprise value. If the company has net debt,
this needs to be subtracted, as equity holders' claims to a company's assets are subordinate to
bondholders'. The result is an estimate of the company's fair equity value. If we divide that by the
number of shares outstandingsay 10 mwe have a fair equity value per share of $123.18,
which we can compare with the market price of the stock. If our estimate is higher than the
current stock price, we might consider Company X a good investment.
Discounted cash flow models are powerful, but they are only as good as their imports. As the
axiom goes, "garbage in, garbage out". Small changes in inputs can result in large changes in the
estimated value of a company, and every assumption has the potential to erode the estimate's
accuracy
Q.8 what do you mean by Leverage Buy out (LBO)? How Leverage Buy Out deals take
place?
A leveraged buyout (LBO) is the acquisition of another company using a significant amount of
borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the
company being acquired are used as collateral for the loans in addition to the assets of the
acquiring company. The purpose of leveraged buyouts is to allow companies to make large
acquisitions without having to commit a lot of capital.
In an LBO, there is usually a ratio of 90% debt to 10% equity. Because of this high debt/equity
ratio, the bonds usually are not investment grade and are referred to as junk bonds. Leveraged
buyouts have had a notorious history, especially in the 1980s when several prominent buyouts
led to the eventual bankruptcy of the acquired companies. This was mainly due to the fact that
the leverage ratio was nearly 100% and the interest payments were so large that the company's
operating cash flows were unable to meet the obligation.
One of the largest LBOs on record was the acquisition of HCA Inc. in 2006 by Kohlberg Kravis
Roberts & Co. (KKR), Bain & Co., and Merrill Lynch. The three companies paid around $33
billion for the acquisition.
It can be considered ironic that a company's success (in the form of assets on the balance sheet)
can be used against it as collateral by a hostile company that acquires it. For this reason, some
regard LBOs as an especially ruthless, predatory tactic.
Some leveraged buyouts occur in companies experiencing hard times and potentially facing
bankruptcy, or they may be part of an overall plan. Not all LBOs are regarded as predatory.
Accelerate growth
Mergers and acquisitions are often undertaken to increase the market share. If competitor
company is taken over, its share of sales is also absorbed. As the result, the acquirer gets higher
sales, revenues and consequently higher profits. Some industries have a mix of very loyal
customers, which means that it is very difficult to attract customers from competition by other
means, as the industry is highly competitive and consumers are disinclined to make the switch.
In such circumstances, merger or acquisition are highly beneficial, since they provide an
opportunity to drastically increase market share. It also allows economies of scale, as per unit
cost decrease due to higher volume. Smaller players in the market are sometimes taken over to
penetrate the market further, where big companies fail to make an impact. Controlling smaller
firms in the industry can greatly accelerate sales of those smaller companies products and
services, since a big name is now attached to them. The acquirer also brings in its expertise and
experience to bring efficiency to the operations of the target company. The combined company
also benefit from exposure to various segments of the industry, which were previously unknown
to the acquirer. The new combined company could help introduce new products tailored for the
unchartered markets, hence finding new consumers for the same products and services.
Roll-up strategies
Some firms are too small in the market and are highly fragmented, which means they experience
higher costs, and it is not feasible for them to keep up operations because there are no economies
of scale due to a very small volume. An acquisition is such case is more common and can be
hugely beneficial to the target company, as it could keep on operating only with an element of
economies of scale. It would also help an acquirer, since it would be able to penetrate smaller
fractions of the market, as smaller companies have access to these markets. Hence this kind of
merger creates value for both companies, and promises greater efficiency in the operational
activities. Advertising campaigns can be coordinated together in order to increase revenues and
save on costs.
invest all effort an energy on quantity, mergers and takeovers are initiated to improve the overall
competitive environment in the industry.
CASE STUDY
1913 - Assembly Line: low priced, mass-produced automobile with standard interchangeable
parts. Hiring of African Americans, Virtual manufacturing, focus on safety, Advantage through
fuel efficiency.
Jaguar: The ups and downs:
1922 - Founded in Blackpool as Swallow Sidecar Company
1960 - Jaguar name first appeared in 1935
1975 - Nationalized in due to financial difficulties
1984 - Floated off as a separate co in the stock market
1990 - Taken over by Ford
A statement of ultra luxury, Holds Royal warrants, Rarely advertised Fords formula one entry
since 1990s.
1948: Land Rover is designed by the Rover Car co
1976: One millionth Land Rover leaves the production line
1994: Rover Group is taken over by BMW
Tata Motors, which has a joint venture with Fiat for cars, engines and transmissions in India, is also
facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor, Renault and Volkswagen.
Analysts pick
Analysts indicate that Tata Motors can comfortably finance the acquisition of Jaguar and Land Rover.
The Indian automaker is sitting on a cash pile of over Rs 6,000 crore and generated free cash of over Rs
1,000 crore during FY07. It can easily use these reserves to raise more funds without endangering its
finances. At the end of last financial year, Tata Motors debt-to-equity ratio was a low 0.56, giving it
ample head room to raise more funds.
Over the next 3-4 years, Tata Motors plans to invest Rs 12,000 crore in setting up new units for a small
car, trucks and SUVs and also to expand the capacity of its existing units.
challenge for Tata Motors. These marquee brands have very high production costs and require
phenomenally high engineering and research capabilities as they compete with likes of BMW and Audi.
Taking over the brand is easy, bringing down production costs and turning around the company
successfully, will be the challenge, analysts said. Its a test that Ford failed.
FINANCING WAYS
Low leverage of the auto biz provides funding flexibility
Currently financed the purchase through a $3bn, 15month bridge loan
It intends to refinance the loan through long-term funds
Q.10 a)Write your observation regarding the JLR deal? Mention its
advantages & disadvantages of this deal?
b) why Ford Sell out these two iconic brands? Mention the reasons?
Reports said losses at Jaguar stood at USD 715 million in 2006. Jaguar has been a dog i.e. it has not been
able to provide any profit for ford because of the high manufacturing costs provided in the United
Kingdom.
The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh
vehicles, an 18% YoY growth in 2007..
Bringing down production costs and turning around the company successfully will be the challenge,
analysts said. Its a test that Ford failed.
Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and
Jaguar is so intertwined.
c) what are the consequences of this deal financing on TATA group and
its market position?
The obvious threat to Tata Motors is intellectual property rights. Tata invented the cheapest car
on the market and every automobile manufacturer wants to know how Tata did it Headhunters
are soon going to find out this valuable information and make it available to their own company.
This is a huge threat to Tata Motors because at first they had low competition, but once other car
manufactures find out how they invented such a low cost car, and then these companies too will
jump on board and design their own line of low cost automobiles. On one hand this can be a
threat, but on the other it may not affect Tata Motors at all because people will still want to
purchase their product since they were the pioneers of all the excitement.
Other companies are starting to compete for some of this market share. In fact, the Pakistans
Transmission Motor company has built a basic four-wheeler for only $2,100. This car is
considerably cheap and the Pakistan Transmission Motor company started exporting them to
Sudan, Qatar, and Chile. This is going to be the beginning of new emerging car manufactures
that will be producing low priced cars.
Another obvious threat is that dealing with gas prices. Gas prices continue to rise and the Nano
requires gas, but those who purchase the Nano probably do not have a lot of money and so if gas
prices keep jumping up then that market of consumers will not be able to purchase the car. If One
CAT can be made as cheaply as the Nano then that will benefit the consumers even more because
they will get a car that does not run on gas and it will be cheap to purchase. On the other hand,
gas company will not want One CAT to hit the market because there will be no profits to be
made off the vehicle. Gas companies have a lot of say over the automobile industry so this could
be a big threat.
Another main concern that Tata Motors faces is that cheap cars in India will have an adverse
effect on pollution and global warming because most of the population will be able to afford the
cars. With more people driving cars there will be more accidents and deaths, as well as higher
fossil fuels leaked into the environment causing even more pollution then there already is.Tata
Motors is family owned and this can potentially cause problems down the road because some
family members can become greedy and money hungry. Once they really start to rapidly grow
then there may be family feuds and people not pulling their part. Another threat is the whole
point of their cars being made with cheap plastic. Are these cars durable? Will they hold together
in a head-on collision?
ASSIGNMENT C
MULTIPLE CHOICE QUESTIONS
1.________isequaltothetotalmarketvalueofthefirm'scommonstockdividedby(thereplacement
costofthefirm'sassetslessliabilities).
A) Bookvaluepershare
B) Liquidationvaluepershare
C) Marketvaluepershare
D) Tobin'sQ
E) Noneoftheabove.
2.HighP/Eratiostendtoindicatethatacompanywill_______,ceterisparibus.
A) growquickly
B) growatthesamespeedastheaveragecompany
C) growslowly
D) notgrow
E) noneoftheabove
3.________areanalystswhouseinformationconcerningcurrentandprospectiveprofitabilityofa
firmstoassessthefirm'sfairmarketvalue.
A) Creditanalysts
B) Fundamentalanalysts
C) Systemsanalysts
D) Technicalanalysts
E) Specialists
4._______istheamountofmoneypercommonsharethatcouldberealizedbybreakingupthefirm,
sellingtheassets,repayingthedebt,anddistributingtheremaindertoshareholders.
A) Bookvaluepershare
B) Liquidationvaluepershare
C) Marketvaluepershare
D) Tobin'sQ
E) Noneoftheabove
5.The______isacommontermforthemarketconsensusvalueoftherequiredreturnonastock.
A) dividendpayoutratio
B) intrinsicvalue
C) marketcapitalizationrate
D) plowbackrate
E) noneoftheabove
6..Netprofitisequalto:
(a)Saleslesscostofsalesandoperatingexpenses
(b)Grossprofitlessoperatingexpenses
(c)Saleslessoperatingexpenses
(d)Both(a)&(b)
7.Inthelongrun,asuccessfulacquisitionisonethat:
A)enablestheacquirertomakeanallequitypurchase,therebyavoiding
additionalfinancialleverage.
B)enablestheacquirertodiversifyitsassetbase.
C)increasesthemarketpriceoftheacquirer'sstockoverwhatitwouldhavebeenwithout
theacquisition.
D)increasesfinancialleverage.
8.
Atenderofferis
A)agoodwillgesturebya"whiteknight."
B)awouldbeacquirer'sfriendlytakeoverattempt.
C)awouldbeacquirer'soffertobuystockdirectlyfromshareholders.
D)viewedassexualharassmentwhenitoccursintheworkplace.
9. Youareconsideringacquiringacommonstockthatyouwouldliketoholdforoneyear.You
expecttoreceiveboth$2.50individendsand$28fromthesaleofthestockattheendofthe
year.Themaximumpriceyouwouldpayforthestocktodayis_____ifyouwantedtoearna
15%return.
A) $23.91
B)
C)
D)
E)
$24.11
$26.52
$27.50
noneoftheabove
10.
Thepublicsaleofcommonstockinasubsidiaryinwhichtheparentusuallyretains
majoritycontroliscalled
A)apureplay.
B)aspinoff.
C)apartialselloff.
D)anequitycarveout.
11.
Onemeansforacompanyto"goprivate"is
A)divestiture.
B)thepureplay.
C)theleveragedbuyout(LBO).
D)theprepackagedreorganization.
Q.12Hindranceforgoingintheinternationalbusinessisknownas
a. Synergy
b. Turnkeypoint
c. Tradebarrier
d. Minorityinterest
Q.13.___________________isthecombinationofatleasttwofirmsdoingsimilarbusinessesat
thesamemarketlevel.
a) DiversifiedactivityMerger
b) HorizontalMerger
c) JointVenture
d) VerticalMerger.
Q.14.WhichofthefollowingisNOTrecognizedasamisconceptionaboutentrepreneurship?
a)Entrepreneurshipisfoundonlyissmallbusinesses.
b)Entrepreneurshipiseasy.
c)Successfulentrepreneurshipneedsonlyagreatidea.
d)Entrepreneurialventuresandsmallbusinessesaredifferent.
Q.15.Anentrepreneursprimarymotivationforstartingabusinessis
a. Tomakemoney
b. Tobeindependent
c. Tobefamous
d. Tobepowerful
Q.16.Entrepreneurstypicallyform
a. Servicebusinesses
b. Manufacturingcompanies
c. Constructivecompanies
d. Avarietyofventures
Q.17.Jointventureshavebeenusedbyentrepreneur:
a. Whentheentrepreneurwantstopurchaselocalknowledge
b. Whenrapidentryintothemarketisneeded
c. Bothoftheoptionsgiven
d. Noneoftheabove
Q.18.The_________ofaventurecouldbethatthecompanyhasexperienceinrelated
business.
a.Strength
b.Weakness
c.Opportunity
d.Threat
Q.19.Franchisingis:
a).Purchaseallpartofcompany.
b)Allowinganotherpartytouseaproductorservicesundertheownersname.
c).Joiningtwoormorecompanies.
d).Acompanyacquiringanothercompanyagainstitswill.
20.Manymergersbeginthroughaseriesofnegotiationsbetweenthetwocompanies.Ifthetwo
companiesdecidetoseriouslyinvestigatethepossibilityofamerger,theywilllaunchPhaseIIDue
Diligenceandexecutea:
a. PostMergerContract
b. FormalJointConference
c. Merger&AcquisitionAgreement
d. LetterofIntent
21.Eitherpartyinamergerandacquisitionmaybeentitledtoindemnificationbecauseofasignificant
misrepresentation.Indemnificationisusuallynotdueuntilacertainthresholdhasbeenreached.This
thresholdamountisoftencalledthe:
a. ReciprocalAmount
b. BasketAmount
c. StrikingPrice
d. ClosingRate
22.OnMarch3,1998,MiserSteelmadeatenderoffertoacquireRelianceSteel.Miser'stenderoffer
issettoexpireonMarch23,1998.OnMarch21,1998,anothercompanycalledOhioSteelmadea
tenderoffertoacquireRelianceSteel.BasedonconsiderationofOhioSteel'stenderoffer,theclosing
dateforMiserSteel'stenderofferis:
a. March21,1998
b. March23,1998
c. March25,1998
d. March31,1998
23.Duediligencerequiresthecollectionofalotofinformation.Whichofthefollowinginformation
typeswouldbeleastimportantforduediligencetoworkproperly?
a. EmploymentRecordsofTargetCompany
b. PropertyRecordsofCompetingCompanies
c. FinancialRecordsofTargetCompany
d. PropertyRecordsofTargetCompany
24.Duediligencewillattempttorestatefinancialstatementsinrelationtowhatwilltakeplaceafterthe
twocompaniesmerge.OneareaofparticularconcernasitrelatestotheBalanceSheetis:
a. ProperValuationofCash
b. ParValueAssignedtoStock
c. SelectionofDepreciationMethods
d. PossibleUnderstatementofLiabilities
25.Duediligenceisparticularlyimportantinthecaseofareversemergersinceitisnecessaryto"clean
theShellCompany."OneimportantaspectofcleaningtheShellCompanyisto:
a. ConfirmownershipoftheShellCompany
b. Identifyculturalandsocialissues
c. Planforlongtermintegration
d. Evaluatehumanresourcecapital
Q.26.Thefollowingareexamplesofchangesincorporatecontrolexcept:
(a)Merger&Acquisition
(b)LeverageBuyOut(LBOs)
(c)Proxyfights
(d)SpinOff&carveouts
Q.27Leveragedbuyouts(LBOs)almostalwaysinvolve:
(a)AAAgradedebt
(b)Issuanceofnewsharesofstocktomanyinvestors.
(c)Junkgradedebt
(d)Alloftheabove
Q.29.BiggainersfromLBOswere:
(a)Junkbondholder
(b)Raiders
(c)Sellingstockholders.
(d)Investmentbankingfirm.
Q.30.Junkbondsarebondswith:
(a)AAAorAaaratings
(b).BBBorBaaratings
(c).BBorBaratings.
(d).Dratedbonds.
Q.31.Incaseofcarveouts:
(a).Sharesofthenewcompanyaregiventotheshareholdersoftheparentcompany
(b).Sharesofthenewcompanyaresoldinapublicoffering
(c).Sharesofthenewcompanyareboughtbyborrowingorissuingjunkbonds
(d).Noneoftheabove.
Q.32.Aprivatizationisa:
(a)Saleofagovernmentownedcompanytoprivateinvestor
(b).Saleofprivatecompaniestothegovernment.
(c).Saleofapubliclytradedcompanytoprivateinvestors.
(d).Noneoftheabove.
Q.33.Whichofthefollowingstatementsregardingspinoffsandcarveoutsisnottrue?
(a).Spinoffsarenottaxediftheshareholdersoftheparentcompanyaregivenamajority
ofsharesinthenewcompany.
(b).Spinoffsarenottaxediftheshareholdersoftheparentcompanyaregivenatleast80%of
thesharesinthenewcompany.
(c).Gainsorlossesfromcarveoutsaretaxedatthecorporatetaxrate.
(d).noneoftheabove.
Q.34.Thefollowingareimportantmotivesforprivatizationexcept:
(a).Revenueforthegovernment.
(b).Increasedefficiency.
(c).Conglomeratemerger.
(d).Privatization.
Q.35."Effective"controlofafirmrequiresapproximately:
(A).100%ownership.
(b).51%ownership.
(c).50%ownership.
(d).20%ownership.
Q.36SupposethatthemarketpriceofCompanyXis$45pershareandthatofCompanyYis
$30.IfXoffersthreefourthsashareofcommonstockforeachshareofY,theratioofexchange
ofmarketpriceswouldbe:
A).667
B)1.0
C)1.125
D)1.5.
Q.37Therestructuringofacorporationshouldbeundertakenif
A).therestructuringcanpreventanunwantedtakeover.
B)therestructuringisexpectedtocreatevalueforshareholders.
C)therestructuringisexpectedtoincreasethefirm'srevenue.
D)theinterestsofbondholdersarenotnegativelyaffected.
Q.38The"informationeffect"referstothenotionthat
A).acorporation'sactionsmayconveyinformationaboutitsfutureprospects.
B).managementisreluctanttoprovidefinancialinformationthatisnotrequiredbylaw.
C).agentsincurcostsintryingtoobtaininformation.
D).thefinancialmanagershouldattempttomanagesensitiveinformationaboutthefirm.
Q.39Inthelongrun,asuccessfulacquisitionisonethat:
A).Enablestheacquirertomakeanallequitypurchase,therebyavoidingadditionalfinancial
leverage.
B).Enablestheacquirertodiversifyitsassetbase.
C).Increasesthemarketpriceoftheacquirer'sstockoverwhatitwouldhavebeenwithout
theacquisition.
D).Increasesfinancialleverage.
Q.40Biddingcompaniesoftenpaytoomuchfortheacquiredfirm.Thehubrishypothesis
explainsthisbysuggestingthatthebidders
A).havetoolittleinformationtomakeanoptimaldecision.
B).havebigegosandthisimpedesrationaldecisionmaking.
C).havedifficultyinthinkingstrategicallyoverthelongterm.
D).Areoverlyinfluencedbythetaxconsequencesofanacquisition.