Quick Quiz 1

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1		Kojack Film needs silver to make photographic film. To ensure that they will have an ample supply of silver at a reasonable price, the company purchases a silver mine. This is an example of a(n) .
			A)	horizontal acquisition
			B)	vertical acquisition
			C)	acquisition of liquid assets
			D)	conglomerate acquisition
			E)	hostile takeover
2		Which of the following refer to synergistic gains due to cost reductions in an acquisition? I. Complementary resources II. Marketing gains III. Economies of scale IV. Economies of vertical integration
			A)	I, III and IV only
			B)	I and III only
			C)	II and III only
			D)	II and IV only
			E)	I only
3		Which of the following are beneficial attributes of leveraged buyouts? I. Leveraged buyouts often create entrepreneurial incentives for managers. II. The required repayment of the debt used in the buyout induces reduced managerial efficiencies. III. Conflicts of interest between shareholders and managers are increased. IV. The level of debt may be increased to the optimal level.
			A)	I only
			B)	I and IV only
			C)	I and III only
			D)	I, II and III only
			E)	I, II, III, and IV
4		Suppose Ford acquires K-Mart. This would be an example of a _______________ acquisition.
			A)	pooling of interests
			B)	vertical
			C)	horizontal
			D)	tender offer
			E)	conglormerate
5		Which of the following is NOT a source of acquisition gains from revenue enhancement?
			A)	Market power
			B)	Marketing gains
			C)	An improved product distribution network
			D)	Strategic benefits
			E)	Complementary resources

Use the following information to answer the next five questions: DEF stockholders are paid the current market value of their firm in the form of ABC stock. Both firms are 100% equity-financed. The total earnings of the combined firm are $77,000.

	ABC before merger	DEF before merger
EPS	2.48	1.67
Price per share	25	15
P/E	10.1	9.0
Number of shares	25,000	9,000
Total Earnings	62,000	15,000
Total Value	625,000	135,000

6		What is the number of shares in the new firm?
			A)	29,000
			B)	28,600
			C)	32,000
			D)	30,400
			E)	32,500
7		What is the earnings per share after the merger?
			A)	$3.27
			B)	$2.98
			C)	$2.60
			D)	$2.53
			E)	$2.48
8		What is the total value of the merged firm?
			A)	$760,000
			B)	$725,800
			C)	$625,000
			D)	$490,000
			E)	$135,000
9		What is the price per share after the merger?
			A)	$15.00
			B)	$17.50
			C)	$25.00
			D)	$22.50
			E)	$20.00
10		What is the price/earnings ratio after the merger?
			A)	8.15
			B)	9.88
			C)	10.41
			D)	12.42
			E)	13.37