Quick Quiz 2

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1		Which of the following is NOT a correct statement of a reason why computation of NPV in a merger or an acquisition may be complicated?
			A)	Sometimes poison pills or greenmail provisions may exist.
			B)	Acquisitions are an important control device for shareholders.
			C)	The tax, accounting, and legal issues involved are lengthy, but very straightforward.
			D)	Mergers and acquisitions are sometimes unfriendly.
			E)	The benefits of a merger or acquisition sometimes depend upon strategic fit.
2		A public offer made by one firm to buy shares directly from the stockholders of another firm is called
			A)	a poison pill.
			B)	a merger.
			C)	a consolidation.
			D)	a share rights plan.
			E)	a tender offer.
3		Of the following terms, __________ refers to the creation of value when one firm acquires another.
			A)	merger
			B)	synergy
			C)	pooling of interests
			D)	LBO
			E)	proxy contest
4		__________ is another common name for a poison pill takeover defense.
			A)	Greenmail
			B)	A targeted share repurchase
			C)	An exclusionary self tender offer
			D)	A flip-over provision
			E)	A share rights plan
5		The complete absorption of a firm in which an entirely new firm is created is called a
			A)	consolidation.
			B)	merger.
			C)	lockup.
			D)	tender offer.
			E)	leveraged buy-out.
6		Lee Cocacola, the CFO of Star Airlines, puts together a group of managers and other investors in order to purchase the outstanding shares of the firm and take it private. This is called a __________.
			A)	proxy contest
			B)	tender offer
			C)	vertical acquisition
			D)	management buyout (MBO)
			E)	asset acquisition
7		In the early 1900s, the Standard Oil Company purchased many of its competitors in order to reduce competition and increase its share of the domestic oil market. The firm's actions are consistent with a strategy of making acquisitions to __________.
			A)	enhance managerial control
			B)	exploit synergies
			C)	enhance revenues
			D)	reduce taxes
			E)	reduce capital needs

Use the following information to answer the next three questions:

	Firm A	Firm B
Price per share	$25	$10
Number of shares	20,000	15,000
Total market value	$500,000	$150,000

Both firms are 100% equity. Synergy = $25,000. Firm A can acquire Firm B for $162,500 in either cash or stock.

8		What is the value of the firm after a cash acquisition?
			A)	$512,500
			B)	$520,500
			C)	$525,000
			D)	$650,000
			E)	$675,000
9		What is the value of the new firm if Firm B's shareholders are issued stock?
			A)	$500,000
			B)	$512,500
			C)	$525,000
			D)	$675,000
			E)	$725,000
10		What will the price per share be after the merger if payment is made with stock?
			A)	$25.00
			B)	$25.32
			C)	$25.47
			D)	$25.76
			E)	$27.30