Practice 11

1. D 2. B 3. D 4. D 5. A 6. B 7. C 8. C 9. C 10. D
11. D 12. D 13. C 14. D 15. B 16. B 17. D 18. A 19. D 20. A

1. A reason for acquisitions is synergy. Synergy includes:

a. revenue enhancements.
b. cost reductions.
c. lower taxes.
d. all of these.
e. none of the above.

2. One company wishes to acquire another. Which of the following forms of

acquisition does not require a formal vote by the shareholders of the
acquired firm?
a. Merger.
b. Acquisition of stock.
c. Acquisition of assets.
d. Consolidation.
e. All of the above require a formal vote.

3. Firm A and Firm B merge to form firm AB. This is an example of:
a. a tender offer.
b. an acquisition of assets.
c. an acquisition of stock.
d. a consolidation.
e. both b and c.

4. Which of the following is not true of mergers?

a. Mergers are legally simple.
b. Mergers must be approved by a vote of the stockholders of each
firm.
c. In a merger, the acquiring firm retains its name and identity.
d. Mergers represent a public offer to buy shares directly from the
stockholders of another firm.
e. All of the above are true of mergers.

5. The acquisition of stock has the advantage of:

 a. no shareholder meeting to vote is necessary.
b. minority shareholders may exist.
c. opening the bidding to others.
d. all of the above.
e. none of the above.

6. Suppose that Compaq and Dell were to merge. Ignoring potential antitrust
problems, this merger would be classified as a:
a. monopolistic merger.
b. horizontal merger.
c. conglomerate merger.
d. vertical merger.
e. none of the above.

7. Suppose that AT&T has made an offer to acquire Merck Pharmaceuticals.

Ignoring potential antitrust problems, this merger would be classified as
a:
a. monopolistic merger.
b. horizontal merger.
c. conglomerate merger.
d. vertical merger.
e. none of the above.

8. A dissident group solicits votes in an attempt to replace existing

management. This is called a:
a. tender offer.
b. shareholder derivative action.
c. proxy fight.
d. management freeze out.
e. none of the above.

9. If the All-Star Fuel Filling Company, a chain of gasoline stations acquire the
Mid-States Refining Company, a refiner of oil products, this would be an
example of a:
a. conglomerate acquisition.
b. white knight.
c. vertical acquisition.
d. going-private transaction.
 e. horizontal acquisition.

10. Which of the following is not true of an acquisition of stock or tender

offers?
a. No stockholder meetings need to be held.
b. No vote is required.
c. The bidding firm deals directly with the stockholders of the target
firm.
d. In most cases, 100% of the stock of the target firm is tendered.
e. All of the above are true of tender offers.

11. When the management and/or a small group of investors takeover a firm
and the shares of the firm are delisted and no longer publicly available,
this action is known as:
a. a consolidation.
b. a vertical acquisition.
c. a proxy contest.
d. a going private transaction.
e. None of the above.

12. Following an acquisition, the assets of the acquired firm are added to the
assets of the acquiring firm at their book value. What form of merger
accounting is being used?
a. consolidation
b. aggregation
c. purchase
d. pooling
e. none of the above

13. Following an acquisition, the acquiring firm's balance sheet shows an

asset labeled "goodwill." What form of merger accounting is being used?
a. consolidation
b. aggregation
c. purchase
d. pooling
e. none of the above

14. Firm A merges with Firm B. The difference between the value of the
 combined firm and the values of the separate firms is known as:
a. pooling of interest.
b. consolidation.
c. goodwill.
d. synergy.
e. all of the above.

15. Goodwill from the purchase of another firm is not:

a. an amortized expense.
b. tax deductible.
c. to be expensed for financial reporting purposes.
d. any of the above.
e. none of the above.

16. A merger results in a reduction of average production costs. In this case,

which of the following is correct?
a. The merger must have been conglomerate.
b. Economies of scale exist.
c. The merger must have been vertical.
d. The acquired firm had net operating losses.
e. All of the above are incorrect.

17. The market for corporate control is a phrase that would not describe:
a. a shift in management motivated to increase the value of the firm.
b. top management restructuring of the company.
c. an elimination of managerial inefficiency.
d. the system where corporate insiders trade personal stock holdings.
e. alternative management teams competing for the rights to
management corporate activities.

18. Which of the following is not a potential source of tax gains in an

acquisition?
a. Economies of scale.
b. Net operating losses.
c. Unused debt capacity.
d. Surplus funds.
e. All of the above are potential sources of tax gains.
19. A corporation with surplus cashflows may use the cashflows to:
a. pay dividends.
b. repurchase shares.
c. buy shares in another firm.
d. all of the above.
e. none of the above.

20. A merger should not take place simply for the purpose of:
a. diversification if shareholders can accomplish the same result on
there own portfolios.
b. increasing the debt capacity for the tax shield gain.
c. acquiring free cash flow to be put to use by the acquiror.
d. reducing the cost of production.
e. none of the above.