1. A firm’s enterprise and equity values will increase in response to all of the following variables assuming other things are equal except for
a) An increase in profitable revenue growth
b) A reduction in cost of sales as a percent of sales
c) An increase in the firm’s weighted average cost of capital
d) A decrease in the firm’s weighted average cost of capital
e) A decrease in SG&A as a percent of sales
2. A takeover creates value for the acquirer as long as which of the following statements is true:
a) The NPV of the standalone value of the target firm plus synergy less the offer price is greater than or equal to zero
b) The NPV of the standalone value of the target firm less the offer price is greater than or equal to zero
c) The NPV of the standalone value of the target firm plus synergy less the sum of the offer price and transaction-related expenses is greater than or equal to zero
d) The NPV of the offer price less the standalone value of the target firm is less than or equal to zero.
e) None of the above.
3. The most common sources of value include potential cost savings resulting from all of the following except for which of the following:
a) Shared overhead
b) Elimination of duplicate facilities
c) Better utilization of existing facilities (i.e., economies of scale)
d) Warranty claims
e) Productivity improvements by applying the best practices of both firms
4. Factors destroying firm value following a merger or acquisition could include all but which of the following:
a) Poor product quality
b) Excessive wage and benefit levels
c) Low labor productivity
d) High employee turnover
e) Incremental revenue due to product cross-selling
5. An acquirer will be more likely to finance a takeover using borrowed funds if
a) Its debt to equity ratio is increasing in the future
b) Its interest coverage ratio is decreasing in the future
c) Its interest coverage ratio is increasing and debt to equity ratio is decreasing in the future
d) Its interest coverage ratio is decreasing and debt to equity ratio is decreasing in the future
e) Its interest coverage ratio is increasing and debt to equity ratio is increasing in the future