Chapter 22 Mergers & Acquisition Quiz

Question 1

The reasons shown as above are good motives for mergers except:
I. Economies of scale and scope
II. Complementary resources
III. Diversification
IV. Efficiency gains

Answer 1

A. I, II and IV only
B. I only
C. II only
D. III only
Ans: D

Question 2

Vertical merger refers to which the target and acquirer are in the same industry.

Answer 2

False. For target and acquirer to be in the same industry, it’s called horizontal merger.

Question 3

Which of these are included in the takeover process?
I. Valuation analysis
II. Negotiations
III. Financing strategy
IV. Closing and integration

Answer 3

A. I and II
B. All of the above
C. I, II and III
D. I, III and IV
Ans: B

Question 4

Hostile takeover refers to a scenario in which a target company is willingly acquired by another company.

Answer 4

False

Question 5

Generous compensation packages paid to a firm’s top management in the event of a takeover are referred to as:

Answer 5

A. Posion pill
B. White Knight
C. Golden Parachutes
D. All of the above
Ans: C

Question 6

A reason for acquisition is synergy. Synergy includes:

Answer 6

A. Cost reductions
B. All of the above
C. Revenue enhancements
D. Lower taxes
Asns: B

Question 7

Low growth rates in corporate revenues tend to lead to fewer mergers.

Answer 7

False

Question 8

On average, what happens to the acquirer’s share price on the announcement of a takeover?

Answer 8

A. The acquirer shareholders see a loss of 1% on average in their stock price
B. The acquirer shareholders see a gain of 1% on average in their stock price
C. The acquirer shareholders see a gain of 15% on average in their stock price
D. The acquirer shareholders see a loss of 15% on average in their stock price
Ans: A