Question 1

If the capital structure is stable, and free cash flows are expected to be growing at a constant rate at the horizon date, then the horizon value is calculated by discounting the free cash flows plus the expected future tax shields at the weighted average cost of capital.

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Question 2

A two-tier merger offer is one where the acquiring company offers to purchase the target company in a two-part transaction. Cash is paid to some stockholders, bonds are issued to others, but the total values of each part of the transaction are equal.

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Question 3

Which of the following statements is most CORRECT?

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Question 4

Firms use defensive tactics to fight off undesired mergers. These tactics do not include

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Question 5

The present value of the free cash flows discounted at the unlevered cost of equity is the value of the firm's operations if it had no debt.

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Question 6

Which of the following statements is most CORRECT?

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Question 7

Any goodwill created in a merger must be amortized over its expected life, usually 40 years, for shareholder reporting purposes.

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Question 8

Which of the following are legal and acceptable reasons for the high level of merger activity in the U.S. during the 1980s?

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Question 9

In a financial merger, the relevant post-merger cash flows are simply the sum of the expected cash flows of the 2 companies, measured as if they were operated independently.

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Question 10

Only if a target firm's value is greater to the acquiring firm than its market value as a separate entity will a merger be financially justified.

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Question 11

Which of the following statements about valuing a firm using the APV approach is most CORRECT?

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Question 12

Since a manager's central goal is to maximize the firm's stock price, any merger offer that provides stockholders with significant gains over the current stock price will be approved by the current management team.

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Question 13

The 3 main advantages of holding companies are (1) control with fractional ownership, (2) taxation benefits, and (3) isolation of operating risks.

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Question 14

Discounted cash flow methods are not appropriate for evaluating mergers because the cash flows are uncertain and the discount rate can only be determined after the merger is consummated.

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Question 15

Coca-Cola's acquisition of Columbia Pictures and its announcement that it would operate its new subsidiary separately could be described as primarily a financial merger.

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Question 16

The rate used to discount projected merger cash flows should be the cost of capital of the new consolidated firm because it incorporates the actual capital structure of the new firm.

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Question 17

The distribution of synergistic gains between the stockholders of 2 merged firms is almost always based strictly on their respective market values before the announcement of the merger.

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Question 18

Although goodwill created in a merger may not be amortized for shareholder reporting purposes, it may be amortized for Federal tax purposes.

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Question 19

Which of the following statements is most CORRECT?

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Question 20

Which of the following statements about valuing a firm using the APV approach is most CORRECT?

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Quiz 21: Mergers, Lbos, Divestitures, and Holding Companies

If the capital structure is stable, and free cash flows are expected to be growing at a constant rate at the horizon date, then the horizon value is calculated by discounting the free cash flows plus the expected future tax shields at the weighted average cost of capital.

A two-tier merger offer is one where the acquiring company offers to purchase the target company in a two-part transaction. Cash is paid to some stockholders, bonds are issued to others, but the total values of each part of the transaction are equal.

Which of the following statements is most CORRECT?

Firms use defensive tactics to fight off undesired mergers. These tactics do not include

The present value of the free cash flows discounted at the unlevered cost of equity is the value of the firm's operations if it had no debt.

Which of the following statements is most CORRECT?

Any goodwill created in a merger must be amortized over its expected life, usually 40 years, for shareholder reporting purposes.

Which of the following are legal and acceptable reasons for the high level of merger activity in the U.S. during the 1980s?

In a financial merger, the relevant post-merger cash flows are simply the sum of the expected cash flows of the 2 companies, measured as if they were operated independently.

Only if a target firm's value is greater to the acquiring firm than its market value as a separate entity will a merger be financially justified.

Which of the following statements about valuing a firm using the APV approach is most CORRECT?

Since a manager's central goal is to maximize the firm's stock price, any merger offer that provides stockholders with significant gains over the current stock price will be approved by the current management team.

The 3 main advantages of holding companies are (1) control with fractional ownership, (2) taxation benefits, and (3) isolation of operating risks.

Discounted cash flow methods are not appropriate for evaluating mergers because the cash flows are uncertain and the discount rate can only be determined after the merger is consummated.

Coca-Cola's acquisition of Columbia Pictures and its announcement that it would operate its new subsidiary separately could be described as primarily a financial merger.

The rate used to discount projected merger cash flows should be the cost of capital of the new consolidated firm because it incorporates the actual capital structure of the new firm.

The distribution of synergistic gains between the stockholders of 2 merged firms is almost always based strictly on their respective market values before the announcement of the merger.

Although goodwill created in a merger may not be amortized for shareholder reporting purposes, it may be amortized for Federal tax purposes.

Which of the following statements is most CORRECT?

Which of the following statements about valuing a firm using the APV approach is most CORRECT?