I would like some assistance to make sure I am on the right track with these questions, thank you. Please provide proper reasons to support your response.
(one choice per question)
Question 1: In which of the following ways do companies change the composition of their management?
[A] The shareholders of a company engage in a proxy contest to replace the current board.
[B] The firm can sell new shares to the public.
[C] The firm may be purchased by a public group of investors through a LBO.
[D] Both A and C above
Question 2: Which of the following indicates a merger between unrelated businesses?
[A] Vertical
[B] Conglomerate
[C] Horizontal
[D] Off-shore
Question 3: Which of the following creates economies of scale in a horizontal merger?
[A] Centralizing administrative functions
[B] Controlling raw material supplies or distribution systems
[C] Diversifying risks
[D] All of the above
Question 4: In which of the following cases would a group want to initiate a proxy contest?
[A] When a private group is using borrowed funds to purchase assets or an entire firm.
[B] When an acquirer is inviting shareholders in a firm to sell their shares at a specified price to the acquirer.
[C] When the firm's owners, and possibly other outside parties, wish to place new directors on the board, who will later replace management.
[D] When the shareholders of the acquired firm receive cash or securities in exchange for their shares in the old firm.
Question 5: A company has offered one million of its shares having a total market value of $20 million to acquire a supplier in a vertical acquisition. After the announcement, the bidding company's shares started trading at $22 each. Assuming the acquisition has positive economic gains, what has happened to the cost of the acquisition?
[A] The cost has fallen by $2 million.
[B] The cost has risen by $2 million.
[C] The cost has fallen by $4 million.
[D] The cost has risen by $4 million.
Question 6: Buying a firm with a lower P/E ratio
[A] can increase earnings per share in the short run
[B] can decrease earnings per share in the short run
[C] should result in a higher overall share price
[D] will result in higher future earnings growth
Question 7: Leveraged buyouts, or LBOs, differ from ordinary acquisitions in what way?
[A] The acquisition group is led by the company's management.
[B] LBOs specifically focus on small private corporations.
[C] A substantial portion of the purchase price is financed by debt.
[D] The shares of the company are still traded on the open market after the acquisition.
Question 8: Which of the following describe potential takeover defenses a firm could put in place?
[A] Staggered elections of directors
[B] Poison Pills
[C] Supermajorities
[D] All of the above
Question 9: Why are mature companies often the target of takeover bids?
[A] Mature companies are more likely to have profitable investment opportunities.
[B] Mature companies are less likely to have substantial cash flow.
[C] Mature companies are more likely to have substantial free cash flow.
[D] Mature companies are less likely to undertake negative net present value investments.
Question 10: Which of the following statements is true regarding the economic gains from mergers and acquisitions?
[A] The economic gains from mergers and acquisitions are generally zero.
[B] The economic gains from mergers and acquisitions are generally received by the sellers.
[C] The economic gains from mergers and acquisitions are generally received by the buyers.
[D] The economic gains from mergers and acquisitions are generally distributed equally