Exercise05.pdf - Tri Vi Dang Corporate Finance Columbia...

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1 Tri Vi Dang Columbia University Corporate Finance Fall 2017 Exercise Set 5 Due Tuesday, 11/21 This problem set consists of four questions. You can obtain a maximum of 40 points. Question 1 [10 points] (a) Managers have different motivations to acquire another company. When is a merger likely to be beneficial for the shareholders of both firms? [2p](b) When is a merger likely to be not beneficial for shareholders of the acquiring company? [2p](c) What role does an investment bank play when there is an acquisition? Who else are also involved? [2p](d) How can you empirically test whether the stock market (on average) perceives that a merger is in the interest of the shareholder of the acquiring firm? Please describe briefly the main steps of your methodology. [4p]Question 2 [6 points] Please comment on the following statements. (a) Venture capital funds want to invest in innovative startups. Why should VC manager care about agency theory? What is agency theory about? [3p](b) Venture capital funds invest in startups. Why are convertible preferred securities so prevalent in such investments? [3p]

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