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Q:
If a transaction involves a cash purchase of target stock, the target companys tax cost or basis in the acquired stock or assets is increased or stepped up automatically to their fair market value (FMV), which is equal to the purchase price paid by the acquirer.
True or False
Q:
The interest rate borrowers pay on their mortgages is determined by
A) current long-term market rates.
B) the term.
C) the number of discount points.
D) all of the above.
Q:
The most common type of mortgage-backed security is
A) the mortgage pass-through, a security that has the borrower's mortgage payments pass through the trustee before being disbursed to the investors.
B) collateralized mortgage obligations, a security which reduces prepayment risk.
C) the participation certificate, a security which passes the borrower's mortgage payments equally among all the owners of the certificates.
D) the securitized mortgage, a security which increases the liquidity of otherwise illiquid mortgages.
Q:
It is seldom important that the buyer and seller agree on the allocation of the sales price among the assets being sold, since the allocation will determine the potential tax liability that would be incurred by the seller but that could by passed on to the buyer through to terms of the sales contract. True or False
Q:
The major advantages of using a triangular structure are limitations of the voting rights of acquiring shareholders and that the acquirer gains control of the target through a subsidiary without being directly responsible for the targets known and unknown liabilities. True or False
Q:
Mortgage-backed securities
A) have been growing in popularity in recent years as institutional investors look for attractive investment opportunities.
B) are securities collateralized by a pool of mortgages.
C) are securities collateralized by both insured and uninsured mortgages.
D) are all of the above.
E) are only A and B of the above.
Q:
A transaction is usually taxable to the target firms shareholders, if the acquirers stock is used to purchase at least 30% of the target firms stock or assets. True or False
Q:
Ginnie Mae
A) insures qualifying mortgages.
B) insures pass-through certificates.
C) insures collateralized mortgage obligations.
D) does only A and B. of the above
E) does only B and C of the above.
Q:
In a triangular cash merger, the target firm may either be merged into an acquirers operating or shell acquisition subsidiary with the subsidiary surviving or the acquirers subsidiary is merged into the target firm with the target surviving.
True or False
Q:
REMICs are most like
A) Freddie Mac pass-through securities.
B) Ginnie Mae pass-through securities.
C) participation certificates.
D) collateralized mortgage obligations.
Q:
A transaction generally will be considered non-taxable to the seller or target firms shareholder if it involves the purchase of the targets stock or assets for substantially all cash, notes, or some other nonequity consideration. True or False
Q:
________ issues participation certificates, and ________ provides federal insurance for participation certificates.
A) Freddie Mac; Freddie Mac
B) Freddie Mac; Ginnie Mae
C) Ginnie Mae; Freddie Mac
D) Ginnie Mae; Ginnie Mae
E) Freddie Mac; no one
Q:
The sale of stock, rather than assets, is generally preferable to the target firm shareholders to avoid double taxation, if the target firm is structured as a limited liability company.
True or False
Q:
The Federal Housing Administration (FHA)
A) was set up to buy mortgages from thrifts so that these institutions could make more loans.
B) funds purchases of mortgages by selling bonds to the public.
C) provides insurance for certain mortgage contracts.
D) does all of the above.
E) does only A and B of the above.
Q:
From the viewpoint of the seller or target company shareholder, transactions may be tax-free or entirely or partially taxable.
True or False
Q:
The Federal National Mortgage Association (Fannie Mae)
A) was set up to buy mortgages from thrifts so that these institutions could make more loans.
B) funds purchases of mortgages by selling bonds to the public.
C) provides insurance for certain mortgage contracts.
D) does all of the above.
E) does only A and B of the above.
Q:
Taxes are an important consideration in almost any transaction, and they are often the primary motivation for an acquisition.
True or False
Q:
Distinct elements of a mortgage loan include
A) origination.
B) investment.
C) servicing.
D) all of the above.
E) only B and C of the above.
Q:
What are some of the challenges the two companies are likely to face while integrating the businesses?
Q:
A loan-servicing agent will
A) package the loan for an investor.
B) hold the loan in their investment portfolio.
C) collect payments from the borrower.
D) do both A and C of the above.
E) do both B and C of the above.
Q:
Why do boards of directors of both acquiring and target companies often obtain so-called fairness opinions from outside investment advisors or accounting firms? What valuation methodologies might be employed in constructing these opinions? Should stockholders have confidence in such opinions? Why/why not?
Q:
The share of the mortgage market held by commercial banks is approximately
A) 50 percent.
B) 25 percent.
C) 15 percent.
D) 5 percent.
Q:
Discuss various methodologies you might use to value assets acquired from SDL such as existing technologies, core technologies, trademarks and trade names, assembled workforce, and deferred compensation?
Q:
The share of the mortgage market held by savings and loans is
A) over 50 percent.
B) approximately 40 percent.
C) approximately 20 percent.
D) less than 10 percent.
Q:
What are the primary differences between a forward and a reverse triangular merger? Why might JDS Uniphase have chosen to merge its K2 Acquisition Inc. subsidiary with SDL in a reverse triangular merger? Explain your answer.
Q:
With an option ARM loan, the borrower has an option to
A) reduce the monthly interest rate being charged.
B) reduce the monthly payment, possibly increasing the mortgage balance from one month to the next.
C) increase the outstanding balance by increasing the monthly payment.
D) Both A and C are correct.
Q:
How might the use of stock, as an acquisition currency, have contributed to the sustained decline in JDS Uniphases stock through mid-2001? In your judgment what is the likely impact of the glut of JDS Uniphase shares in the market on the future appreciation of the firms share price? Explain your answer.
Q:
Which of the following is a disadvantage of a second mortgage compared to credit card debt?
A) The loans are secured by the borrower's home.
B) The borrower gives up the tax deduction on the primary mortgage.
C) The borrower must pay points to get a second mortgage loan.
D) The borrower will find it more difficult to qualify for a second mortgage loan.
Q:
What is goodwill? How is it estimated? Why did JDS Uniphase write down the value of its goodwill in 2001? Why does this reflect a series of poor management decisions with respect to mergers completed between 1999 and early 2001?
Q:
Second mortgages serve the following purposes:
A) they give borrowers a way to use the equity they have in their homes as security for another loan.
B) they allow borrowers to get a tax deduction on loans secured by their primary residence or vacation home.
C) they allow borrowers to convert their conventional mortgages into GEMs.
D) all of the above.
E) only A and B of the above.
Q:
What are some of the challenges the two companies are likely to face while integrating the businesses?
Q:
Retired people can live on the equity they have in their homes by using a
A) GEM.
B) GPM.
C) SAM.
D) RAM.
Q:
Is this merger likely to be tax free, partially tax free, or taxable? Explain your answer.
Q:
Which of the following are useful for home buyers who expect their income to fall in the future?
A) GPMs
B) RAMs
C) GEMs
D) Only A and B are useful.
E) Only A and C are useful.
Q:
What are the potential risk factors related to the merger?
Q:
Which of the following are useful for home buyers who expect their income to rise in the future?
A) GPMs
B) RAMs
C) GEMs
D) Only A and B are useful.
E) Only A and C are useful.
Q:
How valid are the reasons for the proposed merger?
Q:
Did the AirTouch board make the right decision? Why or why not?
Q:
A borrower with a 30-year loan can create a GEM by
A) simply increasing the monthly payments beyond what is required and designating that the excess be applied entirely to the principal.
B) converting his ARM into a conventional mortgage.
C) converting his conventional mortgage into an ARM.
D) converting his conventional mortgage into a GPM.
Q:
Growing-equity mortgages (GEMs)
A) help the borrower pay off the loan in a shorter time.
B) have such low payments in the first few years that the principal balance increases.
C) offer borrowers payments that are initially lower than the payments on a conventional mortgage.
D) do all of the above.
E) do only A and B of the above.
Q:
Was the transaction non-taxable, partially taxable, or wholly taxable to HiTech shareholders? Why?
Q:
(I) ARMs offer lower initial rates and the rate may fall during the life of the loan.
(II) Conventional mortgages do not allow a borrower to take advantage of falling interest rates.
A) (I) is true, (II) is false.
B) (I) is false, (II) is true.
C) Both are true.
D) Both are false.
Q:
How would the use of purchase accounting affect the balance sheets of the combined companies?
Q:
Borrowers tend to prefer ________ to ________, whereas lenders prefer ________.
A) fixed-rate loans; ARMs; fixed-rate loans
B) ARMs; fixed-rate loans; fixed-rate loans
C) fixed-rate loans; ARMs; ARMs
D) ARMs; fixed-rate loans; ARMs
Q:
What was the form of acquisition? How does this form of acquisition protect the acquiring companys rights to HiTechs proprietary technology?
Q:
(I) Conventional mortgages are originated by private lending institutions, and FHA or VA loans are originated by the government.
(II) Conventional mortgages are insured by private companies, and FHA or VA loans are insured by the government.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false.
Q:
What is the form of payment? Why was it used?
Q:
A borrower who qualifies for an FHA or VA loan enjoys the advantage that
A) the mortgage payment is much lower.
B) only a very low or zero down payment is required.
C) the cost of private mortgage insurance is lower.
D) the government holds the lien on the property.
Q:
How would you characterize the post-closing organization? Why was this organizational structure used?
Q:
During the early years of a balloon mortgage loan, the lender applies
A) most of the monthly payment to the outstanding principal balance.
B) all of the monthly payment to the outstanding principal balance.
C) most of the monthly payment to interest on the loan.
D) all of the monthly payment to interest on the loan.
E) the monthly payment equally to interest on the loan and the outstanding principal balance.
Q:
What is the acquisition vehicle used to acquire the target company, Upstart Corporation? Why was this legal structure used?
Q:
During the last years of a balloon mortgage loan, the lender applies
A) most of the monthly payment to the outstanding principal balance.
B) all of the monthly payment to the outstanding principal balance.
C) most of the monthly payment to interest on the loan.
D) all of the monthly payment to interest on the loan.
E) the monthly payment equally to interest on the loan and the outstanding principal balance.
Q:
Based on a total valuation of $42 billion, Vivendis assets contributed one-third and GEs two-thirds of the total value of NBC Universal. However, after the closing, Vivendi would only own a 20% equity position in the combined business. Why?
Q:
During the last years of an amortizing mortgage loan, the lender applies
A) most of the monthly payment to the outstanding principal balance.
B) all of the monthly payment to the outstanding principal balance.
C) most of the monthly payment to interest on the loan.
D) all of the monthly payment to interest on the loan.
E) the monthly payment equally to interest on the loan and the outstanding principal balance.
Q:
Is this transaction likely to be non-taxable, wholly taxable, or partially taxable to Vivendi? Explain your answer.
Q:
During the early years of an amortizing mortgage loan, the lender applies
A) most of the monthly payment to the outstanding principal balance.
B) all of the monthly payment to the outstanding principal balance.
C) most of the monthly payment to interest on the loan.
D) all of the monthly payment to interest on the loan.
E) the monthly payment equally to interest on the loan and the outstanding principal balance.
Q:
What is the form of payment or total consideration? Why do you think this form of payment may have been selected by the parties involved?
Q:
Which of the following is true of mortgage interest rates?
A) Mortgage rates are closely tied to Treasury bond rates, but mortgage rates tend to stay below Treasury rates because mortgages are secured with collateral.
B) Longer-term mortgages have higher interest rates than shorter-term mortgages.
C) Interest rates are higher on mortgage loans on which lenders charge points.
D) All of the above are true.
E) Only A and B of the above are true.
Q:
What is the form of acquisition vehicle and the post-closing organization? Why do you think the legal entities you have identified were selected?
Q:
Which of the following protects the mortgage lender's right to sell property if the underlying loan defaults?
A) a lien
B) a down payment
C) private mortgage insurance
D) borrower qualification
E) amortization
Q:
What is the form of acquisition? Why might the parties involved in the transaction have agreed to this form?
Q:
Which of the following reduces moral hazard for the mortgage borrower?
A) collateral
B) down payments
C) private mortgage insurance
D) borrower qualifications
Q:
From a legal standpoint, identify the acquirer and the target firms?
Q:
Which of the following is true of mortgage interest rates?
A) Longer-term mortgages have higher interest rates than shorter-term mortgages.
B) In exchange for points, lenders reduce interest rates on mortgage loans.
C) Mortgage rates are lower than Treasury bond rates because of the tax deductibility of mortgage interest payments.
D) All of the above are true.
E) Only A and B of the above are true.
Q:
Explain the reaction of EOPs and Vornados share prices to the news that Blackstone was the winning bidder. What does the movement in Vornados share price tell you about the likelihood that the firms shareholders would have approved the takeover of EOP?
Q:
What could Vornado have done to assuage EOPs concerns about the certainty of the value of the stock portion of its offer?
Q:
Typically, discount points should not be paid if the borrower will pay off the loan in ________ years or less.
A) 5
B) 10
C) 15
D) 20
Q:
Describe Blackstones negotiating strategy with EOP in its effort to counter Vornados bids. Be specific.
Q:
Which of the following is true of mortgage interest rates?
A) Longer-term mortgages have lower interest rates than shorter-term mortgages.
B) Mortgage rates are lower than Treasury bond rates because of the tax deductibility of mortgage interest rates.
C) In exchange for points, lenders reduce interest rates on mortgage loans.
D) All of the above are true.
E) Only A and B of the above are true.
Q:
Is the proration clause found in most merger agreements in which target shareholders are given several ways in which they can choose to be paid for their shares in the best interests of the target shareholders? In the best interests of the acquirer? Explain your answer.
Q:
Which of the following are true of mortgages?
A) More than 80 percent of mortgage loans finance residential home purchases.
B) The National Banking Act of 1863 rewarded banks that increased mortgage lending.
C) Most mortgages during the 1920s and 1930s were balloon loans.
D) All of the above are true.
E) Only A and C of the above are true.
Q:
How did Chevron use the form of payment as a potential takeover strategy?
Q:
Which of the following are true of mortgage interest rates?
A) Interest rates on mortgage loans are determined by three factors: current long-term market rates, the term of the mortgage, and the number of discount points paid.
B) Mortgage interest rates tend to track along with Treasury bond rates.
C) The interest rate on 15-year mortgages is lower than the rate on 30-year mortgages, all else the same.
D) All of the above are true.
E) Only A and B of the above are true.
Q:
Which of the following are true of mortgages?
A) A mortgage is a long-term loan secured by real estate.
B) Borrowers pay off mortgages over time in some combination of principal and interest payments that result in full payment of the debt by maturity.
C) Less than 65 percent of mortgage loans finance residential home purchases.
D) All of the above are true of mortgages.
E) Only A and B of the above are true of mortgages.
Q:
What was the form of payment employed by both bidders for Unocal? In your judgment, why were they different? Be specific.
Q:
The same outcome could have been achieved if a single buyer had reached agreement with other banks to acquire selected pieces of ABN before completing the transaction. The pieces could then have been sold at the closing. Why might the use of the consortium been a superior alternative?
Q:
Which of the following are true of mortgages?
A) A mortgage is a long-term loan secured by real estate.
B) A borrower pays off a mortgage in a combination of principal and interest payments that result in full payment of the debt by maturity.
C) Over 80 percent of mortgage loans finance residential home purchases.
D) All of the above are true of mortgages.
E) Only A and B of the above are true of mortgages.
Q:
The ABN Amro transaction was completed at a time when the availability of credit was limited due to the sub-prime mortgage loan problem originating in the United States. How might the use of a group rather than a single buyer have facilitated the purchase of ABN Amro?
Q:
Which of the following are important ways in which mortgage markets differ from stock and bond markets?
A) The usual borrowers in capital markets are government entities, whereas the usual borrowers in mortgage markets are small businesses.
B) The usual borrowers in capital markets are government entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses.
C) The usual borrowers in capital markets are government entities and large businesses, whereas the usual borrowers in mortgage markets are small businesses and individuals.
D) The usual borrowers in capital markets are businesses and government entities, whereas the usual borrowers in mortgage markets are individuals.
Q:
In your judgment, what are likely to be some of the major challenges in assembling a buyer consortium to acquire and subsequently dismember a target firm such as ABN Amro? In what way do you thing the use of a single investment advisor might have addressed some of these issues?