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Finance
Q:
________ 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
Q:
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.
Q:
A thinly traded market is a market where
A) there are only a small number of buyers and sellers,where information about opportunities in this market is not widely know, and where interests besides purely maximizing the value of a firm can be important.
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.
Q:
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.
Q:
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) improve firm reputation.
C) reduce agency problems.
D) reduce managerial hubris.
Q:
Entrepreneurs must rely on capital generated from their ongoing operations or ________ and debt capital provided by banks.
A) initial public offering
B) retained earnings
C) venture capital firms
D) operating budgets
Q:
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
Q:
________ 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
Q:
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.
Q:
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.
Q:
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
Q:
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
Q:
________ 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
Q:
________ economies are achieved by the ability of firms to dictate prices by exerting market power.
A) Pecuniary
B) Technical
C) Diversification
D) Production
Q:
Which of the following is a source of diversification economies?
A) marketing
B) production
C) scheduling
D) portfolio management
Q:
________ 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
Q:
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
Q:
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
Q:
In a ________ merger, firms acquire complementary products through their merger and acquisition activities.
A) vertical
B) market extension
C) product extension
D) horizontal
Q:
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
Q:
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
Q:
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
Q:
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.
Q:
In 2012, there were approximately ________ acquisitions or mergers in the United States.
A) 8,000
B) 10,000
C) 12,000
D) 14,000
Q:
In 2011, the total value of announced merger and acquisition activities in the United States was
A) $2 trillion.
B) $1 trillion.
C) $3 trillion.
D) $5 trillion.
Q:
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.
Q:
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.
Q:
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.
Q:
A(n) ________ acquisition occurs when the management of a target firm wants to be acquired.
A) hostile
B) admirable
C) strategic
D) friendly
Q:
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
Q:
A firm engages in a(n) ________ when it purchases a second firm.
A) acquisition
B) joint venture
C) strategic alliance
D) equity alliance
Q:
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.
Q:
Unfriendly takeovers can generate anger and animosity among the target firm management that is directed toward the management of the bidding firm.
Q:
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.
Q:
Perhaps the most significant challenge in integrating bidding and target firms has to do with cultural differences.
Q:
Mergers and acquisitions designed to create vertical integration should be managed through the M-form structure.
Q:
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.
Q:
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.
Q:
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.
Q:
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.
Q:
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.
Q:
The market for corporate control is the market that is created when multiple firms actively seek to acquire one or several firms.
Q:
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.
Q:
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.
Q:
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.
Q:
In mergers and acquisitions, the owners of the bidding firm appropriate the economic value created by the transaction.
Q:
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.
Q:
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.
Q:
In an initial public offering, a firm (typically working with an investment banker) sells its equity to the public at large.
Q:
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.
Q:
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.
Q:
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.
Q:
To be economically valuable, links between bidding and target firms must meet the same criteria as diversification strategies.
Q:
Diversification economies are achieved by the ability of firms to dictate prices by exerting market power.
Q:
Despite the popularity of conglomerate mergers in the 1960s, most mergers and acquisitions among strategically related firms are divested shortly after they are completed.
Q:
In a product extension merger, a firm acquires complementary products through merger and acquisition activities.
Q:
According to the Federal Trade Commission, a firm engages in a horizontal merger when it acquires former suppliers or customers.
Q:
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.
Q:
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.
Q:
The acquisition of strategically unrelated targets will generate substantial economic profits for both the bidding and the target firms.
Q:
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.
Q:
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.
Q:
In 2011, the total value of mergers and acquisition deals in the United States was $10 trillion.
Q:
The number of firms that have used merger and acquisition strategies to become diversified over the past few years is minimal after the credit crunch crisis in 2008.
Q:
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.
Q:
When the assets of two similar-sized firms are combined, this is known as a merger.
Q:
In an acquisition a tender offer can only be made with the support of the management of the acquired firm.
Q:
A privately held firm has not sold any shares on the public stock market.
Q:
When the management of a target firm wants the firm to be acquired, this is known as a hostile takeover.
Q:
For a firm to gain a controlling share in an acquisition, it must purchase more than 51% of the acquired firm's assets.
Q:
A firm engages in an acquisition when it purchases a second firm.
Q:
When there is low uncertainty about the future value of an exchange, an alliance will be preferred to going it alone.
Q:
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.
Q:
In general, firms will prefer a strategic alliance over "going it alone" when the level of transaction-specific investment required to complete an exchange is moderate.
Q:
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.
Q:
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.
Q:
The rarity of strategic alliances depends solely on the number of competing firms that have already implemented an alliance.
Q:
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.
Q:
Although holdup is a form of cheating in strategic alliances, the threat of holdup can also be a motivation for creating an alliance.
Q:
Research on international joint ventures suggests that the existence of transaction-specific investments in their relationships makes these agreements relatively immune to holdup problems.