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FIN 444 / FIN 444 Final Exam New (2016) Score 100%
1. Which of the following are generally considered restructuring activities?
A merger
An acquisition
A divestiture
A consolidation
All of the above
2. Which of the following is the most common reason that M&As often fail to meet expectations?
Overpayment
Form of payment
Large size of target firm
Inadequate post-merger due diligence
Poor post-merger communication
3. An investor group borrowed the money necessary to buy all of the stock of a company. Which of the following terms best describes this transaction?
Merger
Consolidation
Leveraged buyout
Tender offer
Joint venture
4. Which of the following is among the least regulated industries in the U.S.?
Defenses
Communications
Retailing
Public utilities
Banking
5. The purpose of the 1968 Williams Act was to
Give target firm shareholders time to review takeover proposals
Prosecute target firm shareholders who misuse information
Protect target firm employees from layoffs
Prevent tender offers
Promote tender offers
6. All of the following are examples of antitakeover provisions commonly found in state statutes except for
Fair price provisions
Business combination provisions
Cash-out provisions
Short-form merger provisions
Share control provisions
7. Purchasing the target firm’s stock in the open market is a commonly used tactic to achieve all of the following except for
Acquiring a controlling interest in the target firm without making such actions public knowledge.
Lowering the average cost of acquiring the target firm’s shares
Recovering the cost of an unsuccessful takeover attempt
Obtaining additional voting rights in the target firm
Strengthening the effectiveness of proxy contests
8. Over the years the U.S. Congress has transferred some of the enforcement of securities laws to organizations other than the SEC such as
Public stock exchanges
Financial Accounting Standards Board
Public Accounting Oversight Board
State regulatory agencies
All of the above
9. Some of Acme Inc.’s shareholders are very dissatisfied with the performance of the firm’s current management team and want to gain control of the board. To do so, these shareholders offer their own slate of candidates for open spaces on the firm’s board of directors. Lacking the necessary votes to elect these candidates, they are contacting other shareholders and asking them to vote for their slate of candidates. The firm’s existing management and board is asking shareholders to vote for the candidates they have proposed to fill vacant seats on the board. Which of the following terms best describes this scenario?
Leveraged buyout
Proxy contest
Merger
Divestiture
None of the above
10. Market profiling requires an analysis of all of the following factors except for:
Customers
Suppliers
Core competencies
Current and potential competitors
Product or service substitutes
11. All of the following are true about experience curves except for
Applicable primarily to differentiation strategies
Applicable primarily to cost leadership strategies
Reflect declining average unit costs due to increasing accumulated production levels
Reflect both economies of scale and the introduction of more efficient production methods as output increases
Often found in commodity-type industries
12. Examples of corporate level strategies include which of the following:
Growth
Diversification
Operational
Financial
All of the above
13. The screening process represents a refinement of the search process and commonly utilizes which of the following as selection criteria
Market share, product line, and profitability
Product line, profitability, and growth rate
Profitability, leverage, and growth rate
Degree of leverage, market share, and growth rate
All of the above
14. Which of the following do not represent typical closing documents in an asset purchase?
Letter of intent
Listing of any liabilities to be assumed by the buyer
Loan and security agreements if the transaction is to be financed with debt
Complete descriptions of all patents, facilities, and investments
Listing of assets to be acquired
15. Which of the following is not true of the acquisition process?
It always follows a predictable sequence of steps.
It sometimes deviates from the sequence outlined in this chapter.
It involves a negotiation phase
It involves the development of a business plan
None of the above
16. Certain post integration issues are best addressed prior to the closing. These include all of the following except for
Who will pay for employee severance expenses
How will employee payroll be managed during ownership transition
What will be done with checks from customers that the seller continues to receive after closing
How will the seller be reimbursed for monies owed to suppliers for products sold prior to closing
Who will pay for health care and disability claims that often arise just before a business is sold?
17. Which of the following represent commonly used techniques for integrating corporate cultures?
Employees are encouraged to share the same overall goals
“Best practices” in one department are employed in other departments
Multiple businesses share the same service such as the legal department
Employees are co-located
All of the above
18. Poorly executed integration often results in high employee turnover. The costs of such turnover include which of the following?
Declining morale among those that remain
Retraining costs
Declining productivity
Deteriorating customer service
All of the above
19. Which one of the following factors is not considered in calculating the firm’s cost of equity?
risk free rate of return
beta
interest rate on corporate debt
expected return on equities
difference between expected return on stocks and the risk free rate of return
20. Which of the following is true of the enterprise valuation model?
Discounts free cash flow to the firm by the cost of equity
Discounts free cash flow to the firm by the weighted average cost of capital
Discounts free cash flow to equity by the cost of equity
Discounts free cash flow to equity by the weighted average cost of capital
None of the above
21. The incremental cash flows of a merger can relate to which of the following:
Working capital
Profits
Capital spending
Income taxes
All of the above
22. Which one of the following is not a commonly used method of valuing target firms?
Discounted cash flow
Comparable companies method
Recent transactions method
Asset oriented method
Share exchange ratio method
23. Intangible assets often constitute a substantial source of value to the acquiring firm. Which of the following are not generally considered intangible assets?
Patents and technical know-how
Warranty and contingent claims
Trademarks and customer lists
Covenants not to compete and franchises
Copyrights and software
24. Which of the following are examples of intangible assets that may have value to the acquiring company?
Patents
Trade names
Customer lists and relationships
Covenants not to compete
All of the above
25. Which of the following is generally not considered a source of value to the acquiring firm?
Duplicate facilities
Patents
Land on the balance sheet at below market value
Warranty claims
Copyrights
26. Which factors would be considered in determining the feasibility of financing a proposed takeover?
Potential dilution in EPS of the combined firms.
Impact on overall borrowing costs of the combined firms.
Possible violation of loan covenants on existing debt of the acquiring company
Return on total capital of the combined firms
All of the above.
27. A merger which is expected to produce synergy
Should be rejected because the synergy will dilute the combined firm’s earnings per share
Should be rejected because the first year’s cash flow is negative
Has a negative NPV
Should be pursued because it creates value
Reduces target firm revenues
28. All of the following are true of reverse mergers except for.
May be used to take a private firm public
May represent an effective alternative to an IPO
Commonly use private equity placements for financing
Requires 2 years of audited financial statements to take a private firm public
A and B
29. All of the following represent common sources of value in appraising private or publicly owned businesses except for
Intellectual property
Customer lists
Licenses
Contingent liabilities
Employment contracts
30. A corporate shell may have value because
It may enable the owner to avoid the costs of going public
The name is widely recognized
It could own the rights to various forms of intellectual property
All of the above
None of the above
31. Which of the following is a disadvantage of balance sheet adjustments?
Protects buyer from eroding values of receivable before closing
Audit expense
Protects seller from increasing values of receivables before closing
Protects from decreasing values of inventories before closing
Protects seller from increasing values of inventories before closing
32. Form of payment can involve which of the following:
Cash
Stock
Cash and stock
Rights, royalties and fees
All of the above
33. Which of the following are not true of net operating loss carrybacks and carryforwards?
Net operating loss carrybacks enable firms to recover previous taxes paid.
Net operating loss carryforwards enable firms to shelter future taxable income.
Net operating loss carryforwards may be applied to income up to 5 years into the future..
Loss corporations” cannot use a net operating loss carry forward unless they remain viable and in essentially the same business for at least 2 years following the closing of the acquisition.
None of the above
34. The tax status of the transaction may influence the purchase price by
Raising the price demanded by the seller to offset potential tax liabilities
Reducing the price demanded by the seller to offset potential tax liabilities
Causing the buyer to reduce the purchase price if the transaction is taxable to the target firm’s shareholders
Forcing the seller to agree to defer a portion of the purchase price
Forcing the buyer to agree to defer a portion of the purchase price
35. Security provisions and protective covenants are included in loan documents to increase the likelihood that the interest and principal of outstanding loans will be repaid in a timely fashion. Which of the following is not true about security provisions and protective covenants?
Security features include the assignment of payments due under a specific contract to the lender.
Negative covenants include limits on the amount of dividends that might be paid
Limitations on the amount of working capital that the borrower can maintain.
Periodically, financial statements must be sent to lenders.
Automatic loan repayment acceleration if the borrower is in default on any loans outstanding
36. LBO investors must be very careful not to overpay for a target firm because
Major competitors tend to become more aggressive when a firm takes on large amounts of debt
High leverage increases the break-even point of the firm
Projected cash flows are often subject to significant error limiting the ability of the firm to repay its debt
A and B only
A, B, and C
37. Antitrust regulatory authorities tend to look most favorably on which type of alliances?
Equity partnerships
Marketing alliances among competitors
Global alliances
Project oriented ventures involving collaborative research
None of the above
38. Which of the following is generally true about financing JVs and partnerships?
Lenders rarely require guarantees from the parents
Bank loans are commonly used to meet short-term cash requirements
Participants must agree on an appropriate financial structure for the organization
Contributions by the partners of intangible assets are usually easy to value
Corporations are an uncommon form of legal structure
39. Which of the following is not true of a divestiture?
May create cash infusion for the parent firm
Parent ceases to exist
Proceeds of sale taxable if returned to shareholders through a dividend or stock buyback
A new legal subsidiary may be created
B and C
40. A diversified automotive parts supplier has decided to sell its valve manufacturing business. This sale is referred to as a
Merger
Divestiture
Spin-off
Equity carveout
Liquidation
41. All of the following are true of the bankruptcy process except for
The debtor firm may seek protection from its creditors by initiating bankruptcy or may be forced into bankruptcy by its creditors.
When creditors file for bankruptcy on behalf of the debtor firm, the action is said to be involuntary bankruptcy.
Once either a voluntary or involuntary petition is filed, the debtor firm is protected from any further legal action related to its debts until the bankruptcy proceedings are completed.
The filing of a petition triggers an automatic stay even before the court accepts the request.
An automatic stay suspends all judgments, collection activities, foreclosures, and repossessions of property by the creditors on any debt or claim that arose before the filing of the bankruptcy petition
42. All of the following represent different forms of debt restructuring except for
Debt extensions
Debt compositions
Share exchange ratios
Debt for equity swaps
A and D
43. Local country firms may be interested in alliances for which of the following reasons?
To gain access to the technology
To gain access to a widely recognized brand name
To gain access to innovative products
A, B, and C
A and B only
44. Which of the following represent common components of the global capital asset pricing model when applied to valuing firms in emerging countries?
Risk free rate of return
Specific country’s risk premium
Firm size risk premium
Emerging country firm’s global beta
All of the above
45. The most common form of payment involving non-U.S. firms engaged in M&As is
Stock
Cash
Cash and stock
Debt
Cash, stock and debt
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stock and ****
