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Management inquiries

I would like some help to ensure I am on the right track with these questions, thank you.

(one choice per question)

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

Which of the following indicates a merger between unrelated businesses?

[A] Vertical
[B] Conglomerate
[C] Horizontal
[D] Off-shore

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

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.

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.

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

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.

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

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.

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

Solution Preview

Dear Student,

Thank you for using BM.
Below are my answers.

ANSWERS

In which of the following ways do companies change the composition of their management?
[D] Both A and C above.
The new BOD will replace management

Which of the following indicates a merger between unrelated businesses?
[B] Conglomerate
Definition: A merger between firms that are involved in totally unrelated business activities

Which of the following creates economies of scale in a horizontal merger?
[A] Centralizing administrative functions
Definition: Merger of two or more companies with similar product ...

Solution Summary

Economic gains from mergers and acquisitions are featured.

$2.19