Chapter 9 - Test 3

Question 1

The use of strategic alliances to manage economic exchanges has grown substantially over the last several years.

Answer 1

T

Question 2

A strategic alliance exists whenever three or more independent organizations cooperate in the development, manufacture, or sale of products or services.

Answer 2

f

Question 3

In a nonequity alliance, firms create a legally independent firm in which they invest and from which they share any profits that are created.

Answer 3

f

Question 4

In an equity alliance, cooperating firms supplement contracts with equity holdings an alliance partners.

Answer 4

t

Question 5

When a firm cannot realize the cost savings from economies of scale all by itself, it may join in a strategic alliance with other firms so that together both firms will have sufficient volume to be able to gain the cost advantages of economies of scale.

Answer 5

t

Question 6

In general, due to the intangible nature of knowledge, firms are not able to use alliances to learn from their competitors.

Answer 6

f

Question 7

When both parties to an alliance are seeking to learn something from that alliance, a learning race can evolve.

Answer 7

t

Question 8

Network industries are characterized by decreasing returns to scale.

Answer 8

f

Question 9

Firms with high levels of absorptive capacity will learn at higher rates than firms with low levels of absorptive capacity, even if these two firms are trying to learn exactly the same things in an alliance.

Answer 9

t

Question 10

Learning race dynamics are particularly common in relations among large, well-established firms.

Answer 10

f

Question 11

In network industries with increasing returns to scale where standards are unimportant, strategic alliances can be used to create a more favorable competitive environment.

Answer 11

f

Question 12

Explicit collusion exists when firms directly communicate with each other to coordinate their levels of production or their prices and is legal in most countries.

Answer 12

f

Question 13

Tacit collusion exists when firms coordinate their pricing decisions not by directly communicating with each other but by exchanging signals with other firms about their intent to cooperate.

Answer 13

t

Question 14

Strategic alliances can help create the social setting within which tacit collusion may develop.

Answer 14

t

Question 15

Research shows that joint ventures between firms in the same industry may have collusive implications and that these kinds of joint ventures are relatively common.

Answer 15

f

Question 16

Alliances to facilitate entry into new industries are only valuable when the skills needed in these industries are complex and difficult to learn.

Answer 16

f

Question 17

When information asymmetry exists between firms that currently own assets and firms that may want to purchase these assets, the selling firm will often have difficulty obtaining the full economic value of these assets.

Answer 17

t

Question 18

In new and uncertain environments it is not unusual for firms to develop numerous strategic alliances.

Answer 18

t

Question 19

Research shows that as many as two-thirds of strategic alliances do not meet the expectations of at least one alliance partner.

Answer 19

f

Question 20

When potential cooperative partners misrepresent the skills, abilities, and other resources that they will bring to an alliance, this is a form of cheating known as adverse selection.

Answer 20

t

Question 21

In general, the less tangible the resources and capabilities that are to be brought to a strategic alliance, the less costly it will be to estimate their value before an alliance is created and the more likely it is that adverse selection will occur.

Answer 21

f

Question 22

Moral hazard occurs when partners in an alliance possess high-quality resources and capabilities of significant value in an alliance but fail to make those resources and capabilities available to alliance partners.

Answer 22

t

Question 23

The existence of moral hazard in a strategic alliance proves that at least one of the parties is either malicious or dishonest.

Answer 23

f

Question 24

In an alliance a holdup occurs when a firm that has not made significant transaction-specific investments demands returns from an alliance that are higher than what the partners agreed to when they created the alliance.

Answer 24

t

Question 25

Research on international joint ventures suggests that the existence of transaction-specific investments in their relationships makes these agreements relatively immune to holdup problems.

Answer 25

f

Question 26

Although holdup is a form of cheating in strategic alliances, the threat of holdup can also be a motivation for creating an alliance.

Answer 26

t

Question 27

For a strategic alliance to be a source of sustained competitive advantage it must be valuable in that it exploits an opportunity but avoids a threat and it must also be rare and costly to imitate

Answer 27

t

Question 28

The rarity of strategic alliances depends solely on the number of competing firms that have already implemented an alliance.

Answer 28

f

Question 29

In the short-run, firms can gain some advantages by cheating their alliance partners but research suggests that cheating does not pay in the long run.

Answer 29

t

Question 30

Successful strategic alliances are often based on socially complex relations among alliance partners but virtually every firm in a given industry is likely to have the organizational and relationship-building skills required for alliance building making the possibility of direct duplication of strategic alliances very high.

Answer 30

f

Question 31

In general, firms will prefer to go it alone rather than enter into a strategic alliance when the level of transaction-specific investment required to complete an exchange is low.

Answer 31

t

Question 32

Capabilities theory suggests that an alliance will be preferred over going it alone when an exchange partner possesses valuable, rare, and costly-to-imitate resources and capabilities.

Answer 32

t

Question 33

When there is low uncertainty about the future value of an exchange, an alliance will be preferred to going it alone.

Answer 33

f

Question 34

Transaction cost economics suggests that going it alone is not a substitute for strategic alliances since they are best chosen only when other alternatives are not viable.

Answer 34

t

Question 35

An alliance will be preferred to an acquisition when there are legal constraints on acquisitions.

Answer 35

t

Question 36

The primary purpose of organizing a strategic alliance is to enable partners in the alliance to gain all the benefits associated with cooperation while minimizing the probability that cooperating firms will cheat on their cooperative agreements.

Answer 36

t

Question 37

In general, contracts are sufficient to resolve all the problems associated with cheating in an alliance.

Answer 37

f

Question 38

Sometimes the value of cheating in a joint venture is sufficiently large that a firm cheats even though doing so hurts the joint venture and forecloses future opportunities.

Answer 38

t

Question 39

In comparison to strategic alliances, joint ventures increase the threat of cheating by partners.

Answer 39

f

Question 40

When the probability of cheating in a cooperative relationship is lowest, a joint venture is usually the preferred form of cooperation.

Answer 40

f

Question 41

In the computer technology-based industries, over \_\_\_\_\_\_\_\_ alliances were created between 2001 and 2005.
A) 5,700
B) 1,200
C) 2,200
D) 3,100

Answer 41

c

Question 42

A(n) \_\_\_\_\_\_\_\_ exists whenever two or more independent organizations cooperate in the development, manufacture, or sale of products or services.
A) vertical market
B) strategic alliance
C) initial public offering
D) market transaction

Answer 42

b

Question 43

A \_\_\_\_\_\_\_\_ is a form of nonequity alliance that exists when one firm allows another to use its brand name to sell its products.
A) supply agreement
B) distribution agreement
C) licensing agreement
D) joint venture

Answer 43

c

Question 44

In a \_\_\_\_\_\_\_\_, cooperating firms create a legally independent firm in which they invest and from which they share any profits that are created.
A) licensing agreement
B) supply agreement
C) distribution agreement
D) joint venture

Answer 44

d

Question 45

Strategic alliances can create economic value through helping firms improve their current operations by
A) facilitating the development of technology standards.
B) facilitating tacit collusion.
C) exploiting economies of scale.
D) managing uncertainty.

Answer 45

c

Question 46

When both parties to an alliance are seeking to learn something from that alliance, a \_\_\_\_\_\_\_\_ can evolve.
A) learning race
B) dynamic race
C) learning dynamic
D) learning curve

Answer 46

a

Question 47

Network industries are characterized by
A) increasing diseconomies of scale.
B) increasing returns to scale.
C) decreasing returns to scale.
D) decreasing economies of scale.

Answer 47

b

Question 48

A firm's ability to learn is known as its
A) competitive position.
B) competitive advantage.
C) distinctive competence.
D) absorptive capacity.

Answer 48

d

Question 49

In one study almost \_\_\_\_\_\_\_\_ percent of the managers in entrepreneurial firms felt unfairly exploited by their large-firm alliance partners.
A) 80
B) 20
C) 50
D) 10

Answer 49

a

Question 50

\_\_\_\_\_\_\_\_ exists when firms directly communicate with each other to coordinate their levels of production and/or their prices.
A) Economies of scale
B) Explicit collusion
C) A learning race
D) Tacit collusion

Answer 50

b

Question 51

\_\_\_\_\_\_\_\_ exists when firms coordinate their production and pricing decisions not by directly communicating with each other but by exchanging signals with other firms about their intent to cooperate.
A) Economies of scale
B) Explicit collusion
C) A learning race
D) Tacit collusion

Answer 51

d

Question 52

Strategic alliances are particularly valuable in facilitating market entry and exit when the value of market entry or exit is
A) high.
B) low.
C) moderate.
D) uncertain.

Answer 52

d

Question 53

Although joint ventures between firms in the same industry ________ collusive implications, research has shown that these kinds of joint ventures are ________.
A) may have; relatively rare
B) are not likely to have; relatively rare
C) may have; relatively common
D) are not likely to have; relatively common

Answer 53

a

Question 54

As long as the cost of ________ to enter a new industry is less than the cost of ________, an alliance can be a valuable strategic opportunity.
A) vertically integrating; learning new skills and capabilities
B) learning new skills and capabilities; using an alliance
C) using an alliance; learning new skills and capabilities
D) learning new skills and capabilities; vertically integrating

Answer 54

c

Question 55

Consistent with a real options perspective, firms in new and uncertain environments are likely to
A) avoid using strategic alliances.
B) develop numerous strategic alliances.
C) develop few strategic alliances.
D) engage in vertical integration.

Answer 55

b

Question 56

Research shows that as many as \_\_\_\_\_\_\_\_ of all strategic alliances do not meet the expectations of at least one alliance partner.
A) one-third
B) five-eighths
C) one-half
D) two-thirds

Answer 56

a

Question 57

If TeleCo were to enter into a strategic alliance with a partner that promised it could deliver a high quality wireless infrastructure when in fact the potential partner had neither the skills nor abilities to provide this infrastructure, TeleCo could be said to be impacted by
A) moral hazard.
B) adverse selection.
C) holdup.
D) tacit collusion.

Answer 57

b

Question 58

Adverse selection in a strategic alliance is likely only when
A) it is difficult or costly to observe the resources or capabilities that a partner brings to an alliance.
B) a potential partner can easily see the resources and capabilities that a firm is bringing to an alliance.
C) it is difficult or costly to know how competitors will react to the strategic alliance.
D) there are significant transaction-specific assets devoted to the alliance.

Answer 58

a

Question 59

In general, the \_\_\_\_\_\_\_\_ tangible the resources and capabilities that are to be brought to a strategy alliance, the \_\_\_\_\_\_\_\_ costly it will be to estimate their value before an alliance is created, and the \_\_\_\_\_\_\_\_ likely it is that adverse selection will occur.
A) more; more; more
B) less; more; less
C) less; more; more
D) more; more; less

Answer 59

c

Question 60

\_\_\_\_\_\_\_\_ occurs when partners in an alliance possess high-quality resources and capabilities of significant value in an alliance but fail to make those resources and capabilities available to alliance partners.
A) Moral hazard
B) Adverse selection
C) Holdup
D) Explicit collusion

Answer 60

a

Question 61

Often both parties in a failed alliance accuse each other of
A) adverse selection.
B) tacit collusion.
C) moral hazard.
D) holdup.

Answer 61

c

Question 62

When one firm makes more transaction-specific investments in a strategic alliance than partner firms make, that firm may be subject to a form of cheating called \_\_\_\_\_\_\_\_ that occurs when a firm that has not made significant transaction-specific investments demands returns from an alliance that are higher than what the partners agreed to when they created the alliance.
A) adverse selection
B) holdup
C) moral hazard
D) noncompliance

Answer 62

b

Question 63

Research suggests that \_\_\_\_\_\_\_\_ are the type of alliance where existence of transaction-specific investments often leads to holdup problems.
A) licensing agreements
B) equity alliances
C) joint ventures
D) distribution agreements

Answer 63

c

Question 64

The rarity of strategic alliances
A) depends solely on the number of competing firms that have already implemented an alliance.
B) depends solely on whether or not the benefits that firms obtain from their alliances are not common across firms in the industry.
C) depends not only on the number of competing firms that have already implemented an alliance but also on whether or not the benefits that firms obtain from their alliances are not common across competing firms in the industry.
D) depends solely on the number of substitutes available for alliances.

Answer 64

c

Question 65

One of the reasons why the benefits that accrue from a particular strategic alliance may be rare is that
A) relatively few firms may have the complementary resources and abilities needed to form an alliance.
B) there is a relatively large number of alliance partners available.
C) relatively many firms may have the complementary resources and abilities needed to form an alliance
D) there may be a relatively low amount of transaction-specific assets to enter into similar alliances.

Answer 65

a

Question 66

Research indicates that the most common reason that alliances fail to meet the expectations of partner firms is
A) the lack of financial resources.
B) the necessity of transaction-specific investments.
C) the lack of transaction-specific investments.
D) the partners’ inability to trust one another.

Answer 66

d

Question 67

To the extent that a strategic alliance is based on \_\_\_\_\_\_\_\_ relations, it will make the alliances costly to imitate.
A) socially complex
B) tacit collusion
C) explicit collusion
D) moral hazard

Answer 67

a

Question 68

Two possible substitutes for strategic alliances include
A) going it alone and tacit collision.
B) going it alone and acquisitions.
C) acquisitions and explicit collusion.
D) explicit collusion and tacit collusion

Answer 68

b

Question 69

Firms \_\_\_\_\_\_\_\_ when they attempt to develop all the resources and capabilities they need to exploit market opportunities and neutralize market threats by themselves.
A) engage in tacit collusion
B) form joint ventures
C) go it alone
D) engage in explicit collusion

Answer 69

c

Question 70

Alliances will be preferred to going it alone when
A) the level of transaction-specific investments required to complete an exchange is low.
B) there are no transaction-specific investments required to complete an exchange is low.
C) when there is low uncertainty about the future value of an exchange.
D) the level of transaction-specific investments required to complete an exchange is moderate.

Answer 70

d

Question 71

\_\_\_\_\_\_\_\_ theory suggests that under conditions of high uncertainty, firms may be unwilling to commit to a particular course of action by engaging in an exchange with a firm and will choose, instead, the strategic flexibility associated with alliances.
A) Capabilities
B) Real options
C) Transaction cost economics
D) Resource-based

Answer 71

b

Question 72

Alliances will be preferred to acquisitions when
A) alliances limit a firm’s flexibility under conditions of high uncertainty.
B) there is minimal unwanted organizational “baggage” in an acquired firm.
C) there are legal constraints on acquisitions.
D) the value of a firm’s resources and capabilities does not depend on its independence.

Answer 72

c

Question 73

An example of a contractual clause that deals with operating issues would be a
A) noncompete clause.
B) minority protection clause.
C) put options clause.
D) termination clause.

Answer 73

a

Question 74

All of the following are methods firms can use to reduce the threat of cheating in strategic alliances except
A) contracts.
B) equity investments.
C) joint ventures.
D) tacit collusion.

Answer 74

d

Question 75

Which of the following is a limitation of the reputational control of cheating in a strategic alliance?
A) Subtle cheating in an alliance is likely to become public knowledge.
B) Even if one firm is clearly cheating in an alliance, the other firm may not be sufficiently tied into a network of firms to make this information public.
C) The effect of a tarnished reputation forecloses future opportunities for a firm and it helps reduce the current losses of the firm that was cheated.
D) The reputation of the firm that was impacted by the cheating may be impacted as significantly as the firm that committed the cheating.

Answer 75

b

Question 76

When the probability of cheating in a cooperative relationship is greatest, a(n) \_\_\_\_\_\_\_\_ is the preferred form of cooperation.
A) equity agreement
B) licensing agreement
C) joint venture
D) distribution agreement

Answer 76

c

Question 77

\_\_\_\_\_\_\_\_ may enable partners to explore exchange opportunities that they could not explore if only legal and economic organizing mechanisms were in place.
A) Trust
B) Joint ventures
C) Reputational effects
D) Equity investments

Answer 77

a

Question 78

While it is often the case that there will be important information asymmetries between firms in an alliance, these asymmetries are likely to be \_\_\_\_\_\_\_\_ when alliances partners come from different countries.
A) much less
B) about the same as
C) much greater
D) marginally greater

Answer 78

c

Question 79

\_\_\_\_\_\_\_\_ collusion exists when firms coordinate their production and pricing decisions not by directly communicating with each other but by exchanging signals with other firms about their intent to cooperate.
A) Explicit
B) Tacit
C) Real
D) Virtual

Answer 79

b

Question 80

\_\_\_\_\_\_\_\_ collusion exists when firms directly communicate with each other to coordinate their levels of production, their prices, and so forth.
A) Tacit
B) Virtual
C) Real
D) Explicit

Answer 80

d

Question 81

1) A firm engages in an acquisition when it purchases a second firm.

Answer 81

t

Question 82

2) For a firm to gain a controlling share in an acquisition, it must purchase more than 51% of the acquired firm’s assets.

Answer 82

f

Question 83

3) When the management of a target firm wants the firm to be acquired, this is known as a hostile takeover.

Answer 83

f

Question 84

4) A privately held firm has not sold any shares on the public stock market

Answer 84

t

Question 85

5) In an acquisition a tender offer can only be made with the support of the management of the acquired firm.

Answer 85

f

Question 86

6) When the assets of two similar-sized firms are combined, this is known as a merger.

Answer 86

t

Question 87

7) While mergers typically begin as a transaction between equals, that is, between firms of equal size and profitability, they often evolve after a merger such that one firm is more dominant in the management of the merged firm than the other.

Answer 87

t

Question 88

8) In the first 11 months of 2008, there were 9,900 mergers and acquisitions in the United States.

Answer 88

f

Question 89

9) In 2007, the total value of mergers and acquisition deals in the United States was $10 trillion

Answer 89

f

Question 90

10) The price of each of a firm’s shares multiplied by the number of shares outstanding is known as the firm’s current market value.

Answer 90

t

Question 91

11) In all acquisitions bidding, firms will be willing to pay a price for a target up to the value that the firm adds to the bidder once it is acquired.

Answer 91

t

Question 92

12) The acquisition of strategically unrelated targets will generate substantial economic profits for both the bidding and the target firms.

Answer 92

f

Question 93

13) If there is any hope that mergers and acquisitions will be a source of superior performance for bidding firms, it must be because of some sort of strategic relatedness between bidding and target firms.

Answer 93

t

Question 94

14) In principle, the Federal Trade Commission will allow any acquisition involving firms with headquarters in the United States that could have the potential for generating monopoly or oligopoly profits in an industry.

Answer 94

f

Question 95

15) According to the Federal Trade Commission, a firm engages in a horizontal merger when it acquires former suppliers or customers.

Answer 95

f

Question 96

16) In a product extension merger, a firm acquires complementary products through merger and acquisition activities.

Answer 96

t

Question 97

17) Despite the popularity of conglomerate mergers in the 1960s, most mergers and acquisitions among strategically related firms are divested shortly after they are completed.

Answer 97

f

Question 98

18) Diversification economies are achieved by the ability of firms to dictate prices by exerting market power.

Answer 98

f

Question 99

19) To be economically valuable, links between bidding and target firms must meet the same criteria as diversification strategies.

Answer 99

t

Question 100

20) If bidding and target firms are strategically related, then the economic value of these two firms combined is greater than their economic value as separate entities

Answer 100

t

Question 101

21) Firms should pursue merger and acquisition strategies only to obtain valuable economies of scope that outside investors find too costly to create on their own

Answer 101

t

Question 102

22) The existence of strategic relatedness between bidding and target firms is sufficient for the equity holders of bidding firms to earn economic profits from their acquisition strategies.

Answer 102

f

Question 103

23) In an initial public offering, a firm (typically working with an investment banker) sells its equity to the public at large.

Answer 103

t

Question 104

24) One study that reviewed 40 empirical merger and acquisition studies in the finance literature concluded that acquisitions, on average, increased the market value of bidding firms by about 25 percent and left the market value of the target firms unchanged.

Answer 104

f

Question 105

25) Strategy researchers have found that in mergers and acquisitions, the more strategically related bidding and target firms are, the more economic value these mergers and acquisitions create

Answer 105

t

Question 106

26) In mergers and acquisitions, the owners of the bidding firm appropriate the economic value created by the transaction.

Answer 106

f

Question 107

27) The cumulative abnormal return for a merger or acquisition can be positive or negative depending on whether the stock in question performs better or worse than what was expected without an acquisition.

Answer 107

t

Question 108

28) Free cash flow is simply the amount of cash a firm has to invest after all positive net present-value investments in its ongoing businesses have been funded.

Answer 108

t

Question 109

29) Managerial hubris is the well-founded belief held by managers in bidding firms that they can manage the assets of a target firm more efficiently than the target firm’s current management.

Answer 109

f

Question 110

30) The market for corporate control is the market that is created when multiple firms actively seek to acquire one or several firms.

Answer 110

t

Question 111

31) The difference between the unexpected value of an acquisition actually obtained by a bidder and the price the bidder paid for the acquisition is a profit for the equity holders of the target firm.

Answer 111

f

Question 112

32) One of the main reasons why bidding firms do not obtain competitive advantages from acquiring strategically related target firms is that several other bidding firms value the target firm the same way.

Answer 112

t

Question 113

33) One of the keys for a bidding firm to earn superior performance in an acquisition strategy is to make sure that multiple bidders are pursuing the same target.

Answer 113

f

Question 114

34) When acquiring a publicly traded firm a bidder has to release all the information it has about the potential value of that target in combination with itself.

Answer 114

f

Question 115

35) A thinly traded market is a market where there are only a small number of buyers and sellers, where information about the opportunities in this market is not widely known, and where interests besides purely maximizing the value of a firm can be important.

Answer 115

t

Question 116

36) Mergers and acquisitions designed to create vertical integration should be managed through the M-form structure.

Answer 116

f

Question 117

37) Perhaps the most significant challenge in integrating bidding and target firms has to do with cultural differences.

Answer 117

t

Question 118

38) Operational, functional, strategic, and cultural differences between bidding and target firms can all be compounded by the merger and acquisition processespecially if that process was unfriendly.

Answer 118

t

Question 119

39) Unfriendly takeovers can generate anger and animosity among the target firm management that is directed toward the management of the bidding firm.

Answer 119

t

Question 120

40) The value that a bidding firm brings to a target firm through an acquisition should be discounted by the cost of strategizing to implement an acquisition.

Answer 120

f

Question 121

41) A firm engages in a(n) \_\_\_\_\_\_\_\_ when it purchases a second firm.
A) acquisition
B) joint venture
C) strategic alliance
D) equity alliance

Answer 121

a

Question 122

42) When one firm acquires a(n) \_\_\_\_\_\_\_\_ of another firm, it has acquired enough of that firm's assets so that the acquiring firm is able to make all the management and strategic decisions in the target firm.
A) market stake
B) equity share
C) controlling share
D) equity stake

Answer 122

c

Question 123

43) A(n) \_\_\_\_\_\_\_\_ acquisition occurs when the management of a target firm wants to be acquired.
A) hostile
B) admirable
C) strategic
D) friendly

Answer 123

d

Question 124

44) When a firm has not sold shares on the public stock market, it is known as
A) closely held.
B) privately held.
C) publicly traded.
D) a small cap stock.

Answer 124

b

Question 125

45) The difference between the current market price of a target firm's shares and the price a potential acquirer offers to pay for those shares is known as an
A) acquisition premium.
B) acquisition discount.
C) acquisition margin.
D) acquisition price.

Answer 125

a

Question 126

46) When Sears and Kmart, two retail firms of relatively equal size in the United States, agreed to combine their assets, this was an example of a(n)
A) joint venture.
B) acquisition.
C) merger.
D) equity agreement.

Answer 126

c

Question 127

47) In 2007, the total value of announced merger and acquisition activities in the United States was 
A) $2.5 trillion
B) $1.7 trillion.
C) $3.0 trillion.
D) $5.0 trillion.

Answer 127

b

Question 128

48) In the first 11 months of 2008, there were \_\_\_\_\_\_\_\_ acquisitions or mergers in the United States.
A) 3,290
B) 4,160
C) 5,270
D) 8,190

Answer 128

d

Question 129

49) The price of each of a firm's shares multiplied by the number of shares outstanding represents the firm's
A) total equity base.
B) current market value.
C) total market share.
D) current market share.

Answer 129

b

Question 130

50) In an unrelated acquisition, if 5 firms are interested in acquiring a firm and each of the bidding firms had a current market value of $30,000 while the current market value of the target firm is $20,000, this acquisition is likely to generate economic profits of \_\_\_\_\_\_\_\_ for the acquiring firm.
A) $10,000
B) $20,000
C) $50,000
D) $0.00

Answer 130

d

Question 131

51) If an electronics manufacturer were to acquire a chain of retail electronic stores to sell its products, this would be an example of a \_\_\_\_\_\_\_\_ merger.
A) vertical
B) horizontal
C) market extension
D) product extension

Answer 131

a

Question 132

52) If eBay were to acquire a smaller online auction company, this would be an example of a \_\_\_\_\_\_\_\_ merger.
A) conglomerate
B) vertical
C) market extension
D) horizontal

Answer 132

d

Question 133

53) In a \_\_\_\_\_\_\_\_ merger, firms acquire complementary products through their merger and acquisition activities.
A) vertical
B) market extension
C) product extension
D) horizontal

Answer 133

c

Question 134

54) When eBay acquired Baaze.com, an Indian auction firm, in order to enter the Indian online auction market, this was an example of a \_\_\_\_\_\_\_\_ merger.
A) product extension
B) market extension
C) conglomerate
D) vertical

Answer 134

b

Question 135

55) If there are no vertical, horizontal, product extension, or market extension links between firms, the FTC defines the merger or acquisition activity between firms as a \_\_\_\_\_\_\_\_ merger.
A) conglomerate
B) vertical
C) horizontal
D) product extension

Answer 135

a

Question 136

56) \_\_\_\_\_\_\_\_ economies are scale economies that occur when the physical processes inside a firm are altered so that the same amounts of input produce a higher quantity of outputs.
A) Pecuniary
B) Diversification
C) Technical
D) Vertical

Answer 136

c

Question 137

57) Which of the following is a source of diversification economies?
A) Marketing
B) Production
C) Scheduling
D) Portfolio management

Answer 137

d

Question 138

58) \_\_\_\_\_\_\_\_ economies are achieved by the ability of firms to dictate prices by exerting market power.
A) Pecuniary
B) Technical
C) Diversification
D) Production

Answer 138

a

Question 139

59) \_\_\_\_\_\_\_\_ economies are achieved by improving a firm's performance relative to its risk attributes or lowering its risk attributes relative to its performance.
A) Technical
B) Diversification
C) Pecuniary
D) Market

Answer 139

b

Question 140

60) Which of the following is a financial motivation for why bidding firms might want to engage in merger and acquisition strategies?
A) To increase leverage opportunities
B) To capture economies of scale
C) To adopt more efficient production or organizational technology
D) To engage in vertical integration

Answer 140

a

Question 141

61) Which one of the following is not one of the reasons that Jensen and Ruback listed as to why bidding firms might want to engage in merger and acquisition strategies?
A) To reduce production or distribution costs
B) To gain market power in product markets
C) To expand individual managers’ power within an organization
D) To eliminate inefficient target management

Answer 141

c

Question 142

62) In a related acquisition, if there is one target firm and ten bidding firms, and the value of each of the bidding firms as a stand-alone entity is $50,000 and the value of the target firm as a stand-alone entity is $30,000, the market value of the combined entity will be
A) $0.00.
B) less than $80,000.
C) $80,000.
D) more than $80,000.

Answer 142

d

Question 143

63) Wealthy individuals who provide capital to entrepreneurs to help them grow their businesses are known as
A) business angels.
B) venture capitalists.
C) stockholders.
D) CEOs.

Answer 143

a

Question 144

64) \_\_\_\_\_\_\_\_ firms typically raise money from numerous smaller investors, which they then invest in a portfolio of entrepreneurial firms.
A) Business angel
B) Venture capital
C) Closely held
D) Private equity

Answer 144

b

Question 145

65) In a(n) \_\_\_\_\_\_\_\_, a firm, typically working with an investment banker, sells its equity to the public at large.
A) FTC
B) merger
C) IPO
D) acquisition

Answer 145

c

Question 146

66) Research suggests that, on average, acquisitions increased the market value of target firms by about ________ percent and ________.
A) 50; left the market value of the bidding firms unchanged
B) 25; left the market value of the bidding firms unchanged
C) 50; increased the market value of the bidding firms by 25 percent
D) 25; increased the market value of the bidding firms by 15 percent

Answer 146

b

Question 147

67) Managers of bidding firms continue to engage in merger or acquisition strategies even though they usually do not generate profits for bidding firms in order to
A) ensure survival.
B) generate free cash flow.
C) reduce agency problems.
D) reduce managerial hubris.

Answer 147

a

Question 148

68) Which of the following actions should bidding firm managers take to help earn superior performance in an acquisition strategy?
A) Share information with other bidders.
B) Delay the closing of the deal.
C) Avoid winning bidding wars.
D) Operate in competitive acquisition markets

Answer 148

c

Question 149

69) A thinly traded market is a market where
A) there are only a small number of buyers and sellers.
B) many firms are implementing acquisition strategies.
C) information about opportunities in this market is widely known.
D) the only important interest is to maximize the value of a firm.

Answer 149

a

Question 150

70) To ensure that the owners of target firms appropriate whatever value is created by a merger or acquisition, managers in these target firms should
A) create a thinly traded market for their firm.
B) seek information from bidders.
C) close the acquisition deal quickly.
D) limit the number of bidders involved in the bidding competition.

Answer 150

b

Question 151

71) \_\_\_\_\_\_\_\_ is (are) a maneuver in which a target firm's management purchases any of the target firm's stock owned by a bidder and does so for a price that is greater than the current market value of that stock.
A) Standstill agreements
B) Poison pills
C) Shark repellents
D) Greenmail

Answer 151

d

Question 152

72) Firms using \_\_\_\_\_\_\_\_ fend off an acquisition by taking over the firm or firms bidding for them.
A) shark repellents
B) a crown jewel sale
C) the Pac Man defense
D) a golden parachute

Answer 152

c

Question 153

73) A \_\_\_\_\_\_\_\_ is a compensation arrangement between a firm and its senior management team that promises these individuals substantial cash payment if their firm is acquired and they lose their jobs in the process.
A) white knight agreement
B) greenmail agreement
C) shark repellent
D) golden parachute

Answer 153

d

Question 154

74) Mergers and acquisitions used to create diversification strategies should be managed through the
A) M-form structure.
B) functional structure.
C) U-form structure.
D) matrix structure.

Answer 154

a

Question 155

75) The most significant challenge in integrating bidding and target firms has to do with
A) accounting differences.
B) cultural differences.
C) operational differences.
D) logistic differences.

Answer 155

b

Question 156

76) A \_\_\_\_\_\_\_\_ is another bidding firm that agrees to acquire a particular target in the place of the original bidding firm.
A) golden parachute
B) greenmail
C) white knight
D) crown jewel

Answer 156

c

Question 157

77) \_\_\_\_\_\_\_\_ include a variety of relatively minor corporate governance changes that, in principle, are supposed to make it more difficult to acquire a target firm.
A) Shark repellents
B) White knights
C) Greenmail
D) Poison pills

Answer 157

a

Question 158

78) Supermajority voting rules are an example of a
A) poison pill.
B) white knight.
C) golden parachute.
D) shark repellent.

Answer 158

d

Question 159

79) \_\_\_\_\_\_\_\_ does not affect the wealth of target firm equity holders.
A) Blue Man defense
B) Pac Man defense
C) Golden parachute
D) Silver parachute

Answer 159

b

Question 160

80) \_\_\_\_\_\_\_\_ is an example of an ineffective and inconsequential response by a target firm.
A) A Pac Man defense
B) A Blue Man defense
C) A crown jewel sale
D) A golden parachute defense

Answer 160

c

Question 161

81) If P&G's bid for Gillette was  invited by Gillette's management, this would be an example of a
A) hostile acquisition.
B) joint venture.
C) friendly acquisition.
D) merger.

Answer 161

c

Question 162

82) If Gillette's total market value on the day the deal was announced was $48.30 billion, P&G's $57 billion offer would represent a(n)
A) 18% acquisition premium.
B) 82% acquisition discount.
C) 82% acquisition premium.
D) 18% acquisition discount.

Answer 162

a

Question 163

83) Since both P&G and Gillette are consumer products firms, this acquisition is best described as a
A) vertical merger.
B) horizontal merger.
C) market extension merger.
D) conglomerate merger.

Answer 163

b

Question 164

84) P&G's acquisition of Wella in 2003 is an example of a
A) market extension merger.
B) conglomerate merger.
C) vertical merger.
D) product extension merger.

Answer 164

d

Question 165

85) P&G's purchase of AG-Hutchison Ltd in 2004 is an example of a
A) conglomerate merger.
B) vertical merger.
C) market extension merger.
D) conglomerate acquisition.

Answer 165

c

Question 166

86) If one of the reasons P&G acquired Gillette was to gain greater market power in key industries, this would be an example of \_\_\_\_\_\_\_\_ economies.
A) technical
B) pecuniary
C) diversification
D) vertical

Answer 166

b

Question 167

87) If P&G wanted to increase the probability that it would be able to earn superior economic performance from its acquisition of Gillette, P&G should
A) share information about Gillette with other potential bidders.
B) share information about strategic fit potential between P&G and Gillette with Gillette.
C) wait to submit its bid for Gillette until there are multiple interested bidders.
D) close the acquisition deal as quickly as possible.

Answer 167

d

Question 168

88) If Gillette’s managers wanted to maximize the value that Gillette received from its acquisition by P&G, they should
A) seek information from P&G about the value that P&G will receive from its acquisition of Gillette.
B) not engage in negotiations with any bidder but P&G.
C) close the acquisition as quickly as possible.
D) stop the acquisition.

Answer 168

a

Question 169

89) If P&G's acquisition of Wella had been delayed because it had to overcome a stipulation in Wella's corporate bylaws requiring that more than 50% of Wella's board of directors had to approve the takeover, this would be an example of
A) the Pac Man defense.
B) a poison pill.
C) greenmail.
D) a shark repellent.

Answer 169

d

Question 170

90) The most significant challenge P&G is likely to face in integrating each of the acquired companies into P&G's operations is likely to be \_\_\_\_\_\_\_\_ differences between P&G and each of the companies.
A) logistical
B) cultural
C) operational
D) distribution

Answer 170

b