Practice Test

Q1) _______ refers to the mutual consolidation of two or more entities to form a new enterprise with a new name. Show Answer

Q2) In a ______, multiple companies of similar size agree to integrate their operations into a single entity, in which there is shared ownership, control, and profit Show Answer

Q3) The purchase of the business of an enterprise by another enterprise is known as ________ Show Answer

Q4) In _________, the firm which acquires another firm is known as acquiring company while the company which is being acquired is known as target company Show Answer

Q5) An ______ is the purchase of by one company ( the acquirer) of a substantial part of the assets or the securities of another
(target company)
Show Answer

Q6) _______ mergers refer to two firms operating in same industry or producing ideal products combining together. Show Answer

Q7) The main objectives of ______ mergers are to benefit from economies of scale, reduce competition, achieve monopoly status and control the market. Show Answer

Q8) ______ merger refers to the combination of two firms operating in industries unrelated to each other. Show Answer

Q9) The main objective of a ______ merger is to achieve a big size. Show Answer

Q10) A watch manufacturer acquiring a cement manufacturer is an example of _________ merger Show Answer

Q11) Combination of a computer system manufacturer with a UPS manufacturer is an example of _______ merger Show Answer

Q12) In ______ merger, the buyer merges into the target and the shareholders of the buyer get stock in the target. Show Answer

Q13) A ______ merger is said to occur when the buyer sets up an acquisition subsidiary which merges into the target Show Answer

Q14) ______ is when a larger company acquires a smaller company with a new product, with the aim of cashing in on its future growth potential. Show Answer

Q15) _______refer to expected cost savings, growth opportunities ,and other financial benefits that occur as a result of the combination of two companies. Show Answer

Q16) NPV = ________ - Premium Show Answer

Q17) _______ is when a larger company acquires a smaller company and uses its greater resources to accelerate market access for the smaller company’s products Show Answer

Q18) ______ is where a company acquires another company improves its performance and then sells it again for a profit. Show Answer

Q19) Synergies that reduce cost through the economies of scale in various divisions of the company, viz. research and development , procurement, sales and marketing, manufacturing, distribution and general administration is called _________ synergies. Show Answer

Q20) Synergies that increase the overall revenue through expanded markets, products cross – selling and an increase in prices is called ________ synergies. Show Answer

Q21) A ______ merger in a small industry will definitely help in increasing the market share Show Answer

Q22) An acquisition is the same thing as ________ Show Answer

Q23) The ways in which mergers and acquisitions occur do not include: ______ Show Answer

Q24) The ‘good’ reasons for Mergers and acquisitions do not include Show Answer

Q25) Justifications for Mergers and acquisitions do not include Show Answer

Q26) Financial motives for Mergers and acquisitions do not relate to Show Answer

Q27) managerial motives for Mergers and acquisitions do not relate to Show Answer

Q28) The three broad approaches to company valuation do not include Show Answer

Q29) Asset – based company valuations do not include the Show Answer

Q30) Earnings – based company valuations do not include the Show Answer

Q31) Other reasons for company valuations do not include Show Answer

Q32) A merger is a combination of businesses in which Show Answer

Q33) Vertical mergers are those in which participants are Show Answer

Q34) An employee stock ownership plan ( ESOP) is a trust that Show Answer

Q35) All of the following are common motives for a merger and acquisition except for Show Answer

Q36) Amalgamation is governed by ________ Show Answer

Q37) A new company is formed under _________ Show Answer

Q38) Balance of capital reduction should be transfer to _______ Show Answer

Q39) A leveraged buyout involves the purchase of a company financed primarily by debt Show Answer

Q40) A merger is a combination of two firms in which only one firm’s identify survives Show Answer

Q41) In a consolidation, two or more firms combine to form a new company. Show Answer

Q42) A horizontal merger occurs between firms at different stages of the value chain Show Answer

Q43) The primary advantage of a holding company is the potential leverage that can be achieved by Gaining effective control of other companies asset at a lower overall cost than would be required if the firm were to acquire 100% of the target’s outstanding shares Show Answer

Q44) Joint ventures are usually more profitable than mergers or acquisitions Show Answer

Q45) A fairness opinion is a certification provided by a third party that guarantees that the price paid for a specific company is fair Show Answer

Q46) Arbitrageurs buy the stock and make a profit on the difference between the bid price and the targets current stock price if the deal is consummated Show Answer

Q47) Empirical studies show that the share price of a target firm rarely rises in advance of the announcement of a takeover attempt Show Answer

Q48) Perceived synergy is rarely a motivation for Mergers and acquisitions Show Answer

Q49) Empirical studies show that unrelated diversification is an excellent way to increase shareholder value Show Answer

Q50) Tax considerations such as acquiring net operating loss carry forwards and investment tax credits are often excellent reasons to justify an acquisition Show Answer

Q51) Market power is a motive for Mergers and acquisitions in which the acquirer is seeking to gain market share in order to get more control over its ability to set prices Show Answer

Q52) Mergers and acquisitions rarely pay off for target firm shareholders Show Answer

Q53) Merger refers to the mutual consolidation of two or more entities to form a new enterprise with a new name Show Answer

Q54) In a merger, multiple companies of similar size agree to integrate their operations into a single entity, in which there is shared ownership, control and profit Show Answer

Q55) The purchase of the business of an enterprise by another enterprise is known as merger Show Answer

Q56) Historically, the shareholders of selling companies have benefited more in a merger than have the shareholders of the buying companies Show Answer

Q57) In leveraged buyouts, very little debt and considerable equity are used to make a cash purchase. Show Answer

Q58) A service company would be a good candidate for an LBO. Show Answer

Q59) If an acquisition is paid for with common or voting preferred stock, the transaction is not taxable at the time of sale. Show Answer

Q60) A company may be acquired either by the purchase of its assets or its common stock Show Answer

Q61) Free cash flow is the cash flow in excess of that required to fund all projects with a positive NPV when discounted at appropriate rates of return Show Answer

Q62) The higher the P/E ratio of the acquiring company in relation to the selling company and the larger the earnings of the selling company in relation to the acquiring company, the greater the increase in earnings per share of the acquiring company Show Answer

Q63) An example of value creation through synergy is an increase of earnings per share due to “bootstrapping Show Answer

Q64) A divestiture is the sale of all or substantially all of a company or product line to another party for cash or securities Show Answer

Q65) The target company is the firm being solicited by the acquiring company Show Answer

Q66) Merger of equals is a merger framework usually applied whenever the merger participants are comparable in size, competitive position, profitability and market capitalization Show Answer

Q67) A vertical merger is one in which the merger participants are usually competitors Show Answer

Q68) Joint ventures are co operative business relationship formed by two or more separate parties to achieve common strategies objectives Show Answer

Q69) Operational restructuring refers to the outright or partial sale of companies or product lines or to downsizing by closing unprofitable or non strategic facilities Show Answer

Q70) The primary advantage of a holding company structure is the potential leverage that can be achieved by gaining effective control of other companies assets at a lower overall cost than would be required if the firm were to acquire 100% of the targets outstanding stock Show Answer

Q71) Holding companies and their shareholders may be subject to triple taxation Show Answer

Q72) Investment bankers offer strategic and tactical advice and acquisition opportunities, screen potential buyers and sellers, make initial contact with a seller or buyer and provide negotiation support for their clients Show Answer

Q73) Large investments bank invariably provide higher quality service and advice than smaller , so called boutique investment banks Show Answer

Q74) Financial restructuring generally refers to actions taken by the firm to change total debt and equity structure Show Answer

Q75) An acquisition occurs when one firm takes a controlling interest in another firm, a legal subsidiary of another firm or selected assets of another firm. The acquired firm often remains a subsidiary of the acquiring company Show Answer

Q76) A leveraged buyout is the purchase of a company using as much equity as possible. Show Answer

Q77) In a statutory merger, both the acquiring and target firms survive Show Answer

Q78) In a statutory merger, the acquiring company assumes the assets and liabilities of the target firm in accordance with the prevailing federal government statutes Show Answer

Q79) In a consolidation, two or more companies join together to form a new firm Show Answer

Q80) A horizontal merger occurs between two companies within the same industry Show Answer

Q81) A conglomerate merger is one in which a firm acquires other firms, which are highly related to its current core business. Show Answer

Q82) Discounted cash flow method considers time value of money Show Answer

Q83) Merger of two companies operating in the same market is called horizontal merger and amalgamation Show Answer

Q84) A situation where combined firm is more valuable than the sum of the individual combined firm is called synergy Show Answer

Q85) _______means unifications of two entities into one acquisition involves one entity buying out another and absorbing the same. Show Answer

Q86) ________involves one entity buying out another and absorbing the same. Show Answer

Q87) Acquisition results when one company purchase the controlling interest in the share capital of another existing company in any of the following ways Show Answer

Q88) ______merger involve mergers of two business companies operating and competing in the same industry. Show Answer

Q89) _____forms of corporate restructuring. Show Answer

Q90) _____mergers between firms in different stages of industrial production in which a buyer and seller relationship exists. Show Answer

Q91) In a ______merger, a firm may either combine with its supplier of input (backward integration) and/or with its customer (forward integration). Show Answer

Q92) There are many ways in which a merger can result into financial synergy, such as ________ Show Answer

Q93) In case of vertical merger, two or more companies which are producing essentially the same products or providing the same services or which are in direct competition with each other join together Show Answer

Q94) In case of an ordinary merger, a profit making company takes over another company which may not be making a profit. Show Answer

Q95) Acquisition refers to the acquiring of ownership right in the property and asset without any combination of companies. Show Answer

Q96) In case of a reverse merger, a healthy company merger into a financially weak company and the former company is dissolved Show Answer

Q97) Conglomerate merger are mergers between two or more companies having related business. Show Answer

Q98) The basic reason for reverse merger is to take advantage of the provisions of Income Tax Show Answer

Q99) Generally, V(PQ) < V (P) + V (Q) Show Answer

Q100) The difference between the combined value and the sum of the values of individual companies is attributed to synergy Show Answer

Q101) A sick unit would not want to get merged with profit making company Show Answer

Q102) In case of an acquisition, the takeover act could be either friendly or hostile Show Answer

Q103) In the case of a merger both the companies dissolve and form another new firm Show Answer

Q104) Corporate restructuring Show Answer

Q105) Companies go for merger due to Show Answer

Q106) Amalgamation is governed by Show Answer

Q107) In Amalgamation, all the assets and liabilities of the transferor company are pooled into the books of transferee company at Show Answer

Q108) In demerger a corporate body is Show Answer

Q109) The forms of restructuring include Show Answer

Q110) In liquidation valuation it is assumed that the company will be Show Answer

Q111) While calculating EPS Show Answer

Q112) Pooling of resources by two or more companies under a common entity is called as _______. Show Answer

Q113) A new company is formed under Show Answer

Q114) One company takes over the business of another company It is case of Show Answer

Q115) A company intending to takeover another company approaches the another company for negotiation and purchase. It is case of Show Answer

Q116) Purchases of shares from non-controlling shareholders in the open market is Show Answer

Q117) Merger of two companies operating in the same market is called as Show Answer

Q118) A merger in which one company takes over the company supplying raw material is a Show Answer

Q119) Merger of totally unrelated lines of business is a Show Answer

Q120) A buyout agreement is known as Show Answer

Q121) Combination of two or more companies results into Show Answer

Q122) A situation where the combined firm is more valuable than the sum of the individual combined firm is Show Answer

Q123) Synergy may arise from Show Answer

Q124) Companies offer for sale due to Show Answer

Q125) Companies offer for sale due to Show Answer

Q126) Merger fails due to Show Answer

Q127) Merger fails due to Show Answer

Q128) Failure of mergers is due to Show Answer

Q129) Corporate restructuring decreases EPS. Show Answer

Q130) Corporate restructuring increases return. Show Answer

Q131) Companies go for merger due to strategic benefits. Show Answer

Q132) Companies go for merger due to the benefit of small scale operations. Show Answer

Q133) Going private is a form of restructuring. Show Answer

Q134) In liquidation value it is assumed that the company will be liquidated. Show Answer

Q135) In liquidation value it is assumed that the company will continue operations. Show Answer

Q136) Preference dividend is added to NPAT for calculations of EPS. Show Answer

Q137) Preference dividend is deducted from NPAT for calculations of EPS. Show Answer

Q138) Merger takes place when one company takes over another company. Show Answer

Q139) In merger, new company is formed. Show Answer

Q140) At least two companies come to gather in merger. Show Answer

Q141) In absorption, new company is formed. Show Answer

Q142) In external reconstruction, new company is formed. Show Answer

Q143) Takeover may be friendly. Show Answer

Q144) Takeover cannot be hostile. Show Answer

Q145) Merger may fail due to weak leadership. Show Answer

Q146) A buyout agreement is known as merger. Show Answer

Q147) In backward expansion, one company takes over another company supplying material. Show Answer

Q148) A new company is formed under absorption. Show Answer

Q149) Synergy may arise from creativity. Show Answer

Q150) Merger of two companies operating in the same market is called as vertical M & A. Show Answer

Q151) Combination of two or more companies results into synergy. Show Answer

Q152) Merger enhances profitability due to cost reduction. Show Answer

Q153) Companies offer for sale due to tax benefit. Show Answer

Q154) Merger may fail due to differences in culture. Show Answer

Q155) Merger may fails due to conflicting objectives. Show Answer