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1- 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...

1- 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.

True

False

2- Synergistic benefits can arise from a number of different sources, including operating economies of scale, financial economies, and increased managerial efficiency.

True

False

3- A spin-off is a type of divestiture in which the assets of a division are sold to another firm.

True

False

4- 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.

True

False

5- In a merger with true synergies, the post-merger value exceeds the sum of the separate companies' pre-merger values.

True

False

6- The present value of the free cash flows discounted at the unlevered cost of equity is the value of the firm's operations if it had no debt.

True

False

7- Only if a target firm's value is greater to the acquiring firm than its market value as a separate entity will a merger be financially justified.

True

False

8- A company seeking to fight off a hostile takeover might employ the services of an investment banking firm to develop a defensive strategy.

True

False

9- Most defensive mergers occur as a result of managers' actions to maximize shareholders' wealth.

True

False

10- 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 three procedures used to defend against hostile takeovers. These strategies are known as "poison pills."

True

False

Top Answer

1.FALSE when interest rates are high, it adversely impacts merger activity as required rate of return will be high and target... View the full answer

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