Chapter 1: Introduction to Mergers and Acquisitions 1. Which of the following are generally considered restructuring activities? a. A merger b. An acquisition c. A divestiture d. A consolidation e. All of the above Answer: 2. All of the following are considered business alliances except for a. Joint ventures b. Mergers c. Minority investments d. Franchises e. Licensing agreements Answer: 3. Which of the following is an example of economies of scope? a. Declining average fixed costs due to increasing levels of capacity utilization b. A single computer center supports multiple business units c. Amortization of capitalized software d. The divestiture of a product line e. Shifting production from an underutilized facility to another to achieve a higher overall operating rate and shutting down the first facility Answer: 4. A firm may be motivated to purchase another firm whenever a. The cost to replace the target firms assets is less than its market value b. The replacement cost of the target firms assets exceeds its market value c. When the inflation rate is accelerating d. The ratio of the target firms market value is more than twice its book value e. The market to book ratio is greater than one and increasing Answer: 5. Which of the following is true only of a consolidation? a. More than two firms are involved in the combination b. One party to the combination disappears c. All parties to the combination disappear d. The entity resulting from the combination assumes ownership of the assets and liabilities of the acquiring firm only. e. One company becomes a wholly owned subsidiary of the other. Answer: 6. Which one of the following is not an example of a horizontal merger? a. NationsBank and Bank of America combine b. U.S. Steel and Marathon Oil combine c. Exxon and Mobil Oil combine d. SBC Communications and Ameritech Communications combine e. Hewlett Packard and Compaq Computer combine Answer: 7. Buyers often prefer friendly takeovers to hostile ones because of all of the following except for: a. Can often be consummated at a lower price b. Avoid an auction environment c. Facilitate post-merger integration d. A shareholder vote is seldom required e. The target firms management recommends approval of the takeover to its shareholders Answer: 8. Which of the following represent disadvantages of a holding company structure? a. Potential for triple taxation b. Significant number of minority shareholders may create contentious environment c. Managers may have difficulty in making the best investment decisions d. A, B, and C e. A and C only Answer: 9. Which of the following are not true about ESOPs? a. An ESOP is a trust b. Employer contributions to an ESOP are tax deductible c. ESOPs can never borrow d. Employees participating in ESOPs are immediately vested e. C and D Answer: 10. ESOPs may be used for which of the following? a. As an alternative to divestiture b. To consummate management buyouts c. As an anti-takeover defense d. A, B, and C e. A and B only Answer: 11. Which of the following represent alternative ways for businesses to reap some or all of the advantages of M&As? a. Joint ventures and strategic alliances b. Strategic alliances, minority investments, and licensing c. Minority investments, alliances, and licensing d. Franchises, alliances, joint ventures, and licensing e. All of the above Answer: 12. Which of the following are often participants in the acquisition process? a. …
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