IFM10 Ch 26 Test Bank

IFM10 Ch 26 Test Bank - CHAPTER 26 MERGERS, LBOs,...

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CHAPTER 26 MERGERS, LBOs, DIVESTITURES, AND HOLDING COMPANIES (Difficulty: E = Easy, M = Medium, and T = Tough) True/False Easy: (26.1) Synergistic merger Answer: a Diff: E 1 . In a merger with true synergies, the post-merger value exceeds the sum of the separate companies' pre-merger values. a. True b. False (26.1) Sources of synergy Answer: a Diff: E 2 . Synergistic benefits can arise from a number of different sources, including operating economies of scale, financial economies, and increased managerial efficiency. a. True b. False (26.1) Spin-off Answer: b Diff: E 3 . A spin-off is a type of divestiture in which the assets of a division are sold to another firm. a. True b. False (26.2) Conglomerate merger Answer: b Diff: E 4 . A conglomerate merger occurs when two firms with either a horizontal or a vertical business relationship combine. a. True b. False (26.3) Mergers and interest rates Answer: b Diff: E 5 . Merger activity is likely to heat up when interest rates are high because target firms can expect to receive an especially high premium over the pre-announcement stock price. a. True b. False (26.4) Defensive mergers Answer: b Diff: E 6 . Most defensive mergers occur as a result of managers' actions to maximize shareholders’ wealth. a. True Chapter 26: Mergers Page 1
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b. False (26.4) Merger terms Answer: a Diff: E 7 . Post-merger control and the negotiated price paid by the acquirer are 2 of the most important issues in agreeing on the terms of a merger. a. True b. False (26.4) Defensive tactics Answer: a Diff: E 8 . A company seeking to fight off a hostile takeover might employ the services of an investment banking firm to develop a defensive strategy. a. True b. False (26.6) Merger analysis Answer: a Diff: E 9 . Since the primary rationale for any operating merger is synergy, in planning such mergers, the development of accurate pro forma cash flows is the single most important action. a. True b. False (26.13) Merger accounting Answer: b Diff: E 10 . Currently (2007), mergers can be accounted for using either the purchase method or the pooling method. a. True b. False (26.15) Poison pills Answer: a Diff: E 11 . Borrowing funds on terms that would require immediate repayment of all funds if the firm is acquired, selling off valuable assets, and granting huge “golden parachutes” that open if the firm is acquired are 3 procedures used to defend against hostile takeovers. These strategies are known as “poison pills.” a. True b. False (26.17) Joint ventures Answer: a Diff: E 12 . A joint venture is one in which 2, or sometimes more, independent companies agree to combine resources in order to achieve a specific objective, usually limited in scope. a. True
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IFM10 Ch 26 Test Bank - CHAPTER 26 MERGERS, LBOs,...

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