HW7 - Problem Set 7 - FINA 4200 Spring 2010 Due Tuesday...

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Problem Set 7 - FINA 4200 Spring 2010 Due Tuesday April 27 before class I. Multiple Choices Chapter 26 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 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 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 4. Leveraged buyouts (LBOs) occur when a firm's managers, generally backed by private equity groups, try to gain control of a publicly owned company by buying out the public shareholders using large amounts of borrowed money. a. True b. False 5. The purchase of assets at below their replacement cost and tax considerations are two factors that motivate mergers. a. True b. False 6. Since managers' central goal is to maximize stock price, managerial control issues do not interfere with mergers that would benefit the target firm's stockholders.
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a. True b. False 7. Since a manager’s central goal is to maximize the firm’s stock price, any merger offer that provides stockholders with significant gains over the current stock price will be approved by the current management team. a. True b. False 8. Discounted cash flow methods are not appropriate for evaluating mergers because the cash flows are uncertain and the discount rate can only be determined after the merger is consummated. a. True
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HW7 - Problem Set 7 - FINA 4200 Spring 2010 Due Tuesday...

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