Accounting
Anthropology
Archaeology
Art History
Banking
Biology & Life Science
Business
Business Communication
Business Development
Business Ethics
Business Law
Chemistry
Communication
Computer Science
Counseling
Criminal Law
Curriculum & Instruction
Design
Earth Science
Economic
Education
Engineering
Finance
History & Theory
Humanities
Human Resource
International Business
Investments & Securities
Journalism
Law
Management
Marketing
Medicine
Medicine & Health Science
Nursing
Philosophy
Physic
Psychology
Real Estate
Science
Social Science
Sociology
Special Education
Speech
Visual Arts
Banking
Q:
Closing is included in which of the following activities?
a. Development of a business plan
b. Development of an acquisition plan
c. The search process
d. The negotiation process
e. None of the above
Q:
Which of the following types of information will most likely enable the exploitation of a profit opportunity?
A) Financial analysts' published recommendations
B) Technical analysis
C) Hot tips from a stockbroker
D) Insider information
Q:
The negotiation process consists of all of the following except for
a. Refining valuation
b. Due diligence
c. Closing
d. Developing a financing plan
e. Deal structuring
Q:
Refining the target valuation based on new information uncovered during due diligence is most likely to affect which of the following
a. Total consideration
b. The search process
c. The business plan
d. The acquisition plan
e. The targets business plan
Q:
Tests used to rate the performance of rules developed in technical analysis conclude that
A) technical analysis outperforms the overall market.
B) technical analysis far outperforms the overall market, suggesting that stockbrokers provide valuable services.
C) technical analysis does not outperform the overall market.
D) technical analysis does not outperform the overall market, suggesting that stockbrokers do not provide services of any value.
Q:
Which of the following is not true of the financing plan?
a. It is rarely affected by the discovery during due diligence of target assets not required to operate the business.
b. It may include both stock and debt.
c. It may include a combination of stock, debt, and cash.
d. It serves as a reality check on the buyer.
e. None of the above.
Q:
Rules used to predict movements in stock prices based on past patterns are, according to the efficient markets theory,
A) a waste of time.
B) profitably employed by all financial analysts.
C) the most efficient rules to employ.
D) consistent with the random walk hypothesis.
Q:
Which of the following statements are true about due diligence?
a. The seller should perform due diligence on its own operations.
b. The seller should perform due diligence on the buyer.
c. The seller should perform due diligence on the lender used by the buyer to finance the transaction.
d. A & B
e. A, B, & C
Q:
To say that stock prices follow a "random walk" is to argue that
A) stock prices rise, then fall, then rise again.
B) stock prices rise, then fall in a predictable fashion.
C) stock prices tend to follow trends.
D) stock prices cannot be predicted based on past trends.
Q:
Which of the following is true about integration planning? Without integration planning, integration is not likely to
a. Provide anticipated synergies
b. Proceed without significant disruption to the target business operations
c. Proceed without significant disruption to the acquirers operations
d. Be completed without experiencing substantial customer attrition
e. All of the above
Q:
To say that stock prices follow a "random walk" is to argue that
A) stock prices rise, then fall.
B) stock prices rise, then fall in a predictable fashion.
C) stock prices tend to follow trends.
D) stock prices are, for all practical purposes, unpredictable.
Q:
Which of the following is not typically true of post-closing evaluation of an acquisition?
a. It is important not to change the performance benchmarks against which the acquisition is measured
b. It is critical to ask the tough questions
c. It is an opportunity to learn from mistakes
d. It is commonly done
e. It is frequently avoided by acquiring firms because of the potential for embarrassment.
Q:
Ivan Boesky, the most successful of the so-called arbs in the 1980s, was able to outperform the market on a consistent basis, indicating that
A) securities markets are not efficient.
B) unexploited profit opportunities were abundant.
C) investors can outperform the market with inside information.
D) only B and C of the above.
Q:
Which of the following do not represent typical closing documents in an asset purchase?
a. Letter of intent
b. Listing of any liabilities to be assumed by the buyer
c. Loan and security agreements if the transaction is to be financed with debt
d. Complete descriptions of all patents, facilities, and investments
e. Listing of assets to be acquired
Q:
The efficient market hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst
A) will certainly mean higher returns than if you had made selections by throwing darts at the financial page.
B) will always mean lower returns than if you had made selections by throwing darts at the financial page.
C) is not likely to prove superior to a strategy of making selections by throwing darts at the financial page.
D) is good for the economy.
Q:
All of the following are true of closing except for
a. Consists of obtaining all necessary shareholder, regulatory, and third party consents
b. Requires significant upfront planning
c. Is rarely subject to last minute disagreements
d. Involves the final review and signing of such documents as the agreement of purchase and sale, loan agreements (if borrowing is involved), security agreements, etc.
e. Fulfillment of the so-called closing conditions
Q:
Studies of mutual fund performance indicate that mutual funds that outperformed the market in one time period
A) usually beat the market in the next time period.
B) usually beat the market in the next two subsequent time periods.
C) usually beat the market in the next three subsequent time periods.
D) usually do not beat the market in the next time period.
Q:
Which of the following is generally not true of integration planning?
a. Is of secondary importance in the acquisition process.
b. Is crucial to the ultimate success of the merger or acquisition
c. Represents an opportunity to earn trust among all parties to the transaction
d. Involves developing effective communication strategies for employees, customers, and suppliers.
e. Is often neglected in the heat of negotiation.
Q:
A situation in which the price of an asset differs from its fundamental market value
A) indicates that unexploited profit opportunities exist.
B) indicates that unexploited profit opportunities do not exist.
C) need not indicate that unexploited profit opportunities exist.
D) indicates that the efficient market hypothesis is fundamentally flawed.
Q:
Which of the following is generally not true of a financing contingency?
a. It is a condition of closing in the agreement of purchase and sale
b. Trigger the payment of break-up fees if not satisfied.
c. Protects both the lender and seller
d. Primarily protects the buyer
e. Primarily protects the seller
Q:
A situation in which the price of an asset differs from its fundamental market value is called
A) an unexploited profit opportunity.
B) a bubble.
C) a correction.
D) a mean reversion.
Q:
Which of the following are commonly used sources of financing for M&A transactions?
a. Asset based lending
b. Cash flow based lending
c. Seller financing
d. A and B only
e. All of the above
Q:
Another way to state the efficient market hypothesis is that in an efficient market,
A) unexploited profit opportunities will never exist as market participants, such as arbitrageurs, ensure that they are instantaneously dissipated.
B) unexploited profit opportunities will not exist for long, as market participants will act quickly to eliminate them.
C) every financial market participant must be well informed about securities.
D) only A and C of the above.
Q:
All of the following are true of buyer due diligence except for
a. Due diligence is the process of validating assumptions underlying valuation.
b. Can be replaced by appropriate representations and warranties in the agreement of purchase and sale.
c. Primary objectives are to identify and to confirm sources and destroyers of value
d. Consists of operational, financial, and legal reviews.
e. Endeavors to identify the fatal flaw that could destroy the deal
Q:
Another way to state the efficient market condition is that in an efficient market,
A) unexploited profit opportunities will be quickly eliminated.
B) unexploited profit opportunities will never exist.
C) arbitrageurs guarantee that unexploited profit opportunities never exist.
D) both A and C of the above occur.
Q:
The negotiation process consists of all of the following concurrent activities except for
a. Refining valuation
b. Deal structuring
c. Integration planning
d. Due Diligence
e. Developing the financing plan
Q:
In a merger, the acquiring firm assumes all liabilities of the target firm. Assumed liabilities include all but which of the following?
a. Current liabilities
b. Long-term debt
c. Warranty claims
d. Fully depreciated operating equipment
e. Off-balance sheet liabilities
Q:
According to the efficient market hypothesis
A) one cannot expect to earn an abnormally high return by purchasing a security.
B) information in newspapers and in the published reports of financial analysts is already reflected in market prices.
C) unexploited profit opportunities abound, thereby explaining why so many people get rich by trading securities.
D) all of the above are true.
E) only A and B of the above are true.
Q:
If the optimal forecast of the return on a security exceeds the equilibrium return, then
A) the market is inefficient.
B) an unexploited profit opportunity exists.
C) the market is in equilibrium.
D) only A and B of the above are true.
E) only B and C of the above are true.
Q:
Total consideration is a legal term referring to the composition of the purchase price paid by the buyer for the target firm. It may consist of which of the following:
a. Cash
b. Cash and stock
c. Cash, stock, and debt
d. A, B, and C
e. A and B only
Q:
The efficient market hypothesis
A) is based on the assumption that prices of securities fully reflect all available information.
B) holds that the expected return on a security equals the equilibrium return.
C) both A and B.
D) neither A nor B.
Q:
The actual price paid by the buyer for the target firm is determined when
a. The initial offer is made
b. As a result of the negotiation process
c. When the letter of intent is signed
d. Following the completion of due diligence
e. Once a financing plan has been approved
Q:
According to the efficient market hypothesis, the current price of a financial security
A) is the discounted net present value of future interest payments.
B) is determined by the highest successful bidder.
C) fully reflects all available relevant information.
D) is a result of none of the above.
Q:
All of the following are true about a confidentiality agreement except for
a. Often applies to both the buyer and the seller
b. Stipulates the type of seller information available to the buyer and how the information can be used
c. Limits the use of information about the seller that is publicly available
d. Includes a termination date
e. Limits the ability of either party to disclose publicly the nature of discussion between the buyer and seller
Q:
How expectations are formed is important because expectations influence
A) the demand for assets.
B) bond prices.
C) the risk structure of interest rates.
D) the term structure of interest rates.
E) all of the above.
Q:
All of the following statements are true about letters of intent except for
a. Are always legally binding
b. Spells out the initial areas of agreement between the buyer and seller
c. Defines the responsibilities and rights of the buyer and seller while the letter of intent is in force
d. Includes an expiration date
e. Includes a no shop provision
Q:
Explain why the liquidity premium theory is so widely accepted.
Q:
Initial contact should be made through an intermediary as high up in the organization for which of the following firms
a. Companies with annual revenue of less than $25 million
b. Medium sized companies between $25 and $100 million in annual revenue
c. Large, publicly traded firms
d. Small, privately owned firms
e. Small, privately owned competitors
Q:
What do credit-rating agencies do and why is this work important?
Q:
The screening process represents a refinement of the search process and commonly utilizes which of the following as selection criteria
a. Market share, product line, and profitability
b. Product line, profitability, and growth rate
c. Profitability, leverage, and growth rate
d. Degree of leverage, market share, and growth rate
e. All of the above
Q:
Explain why a flight to quality occurred following the subprime collapse and how this affected the interest rates on lower-quality corporate bonds and Treasury bonds.
Q:
Each of the following is true about the acquisition search process except for
a. A candidate search should start with identifying the primary selection criteria.
b. The number of selection criteria should be as lengthy as possible.
c. At a minimum, the primary criteria should include the industry and desired size of transaction.
d. The size of the transaction may be defined in terms of the maximum purchase price the acquirer is willing to pay.
e. A search strategy entails the use of electronic databases, trade publications, and querying the acquirers law, banking, and accounting firms for qualified candidates.
Q:
How would a severe recession affect the risk premium on corporate bonds?
Q:
A data room is a method commonly used by sellers to limit buyer due diligence. True or False
Q:
What is meant by the risk structure of interest rates?
Q:
What are some of the key assumptions implicit in eBays decision to make this acquisition?
Q:
Why is it unlikely that the expectations theory alone is the correct theory for explaining the yield curve?
Q:
Do you believe this acquisition if related or unrelated to eBays business? What are the implications of your answer..
Q:
Do you think PepsiCo may have been willing to pay such a high price for Quaker for reasons other than economics? Do you think these reasons make sense? Explain your answer.
Q:
Discuss what is shown by a yield curve.
Q:
Why would an increase in the income tax rate reduce borrowing costs to municipalities?
Q:
Under what circumstances might the Quaker shareholder have benefited more if Quaker had sold itself in pieces (i.e., food/cereal and Gatorade) rather than in total?
Q:
Contrast the liquidity premium theory to the market segmentation theory of the term structure of interest rates.
Q:
Why do you think Quaker wanted to sell its consolidated operations rather than to divide the company into the food/cereal and Gatorade businesses?
Q:
The spread between the interest rates on bonds with default risk and default-free bonds is called the risk premium.
Q:
Why did food industry consolidation prompt Quaker to announce that it was for sale?
Q:
Risk occurs when the issuer of the bond is unable or unwilling to make interest payments when promised or pay off the face value when the bond matures.
Q:
What factors drove consolidation within the food manufacturing industry? Name other industries that are currently undergoing consolidation?
Q:
When yield curves are downward-sloping, long-term interest rates are above short-term interest rates.
Q:
Comment on the likely success of each of this intended transformation?
Q:
An increase in the marginal tax rate would likely increase the demand for municipal bonds, and decrease the demand for U.S. government bonds.
Q:
In your opinion, what are the primary challenges for each of these firms with respect to their employees, customers, suppliers, and shareholders? Be specific.
Q:
A mildly upward-sloping yield curve suggests that the market is predicting constant short-term interest rates.
Q:
What do you think was the major motivating factor behind the Glaxo SmithKline merger and why was it so important?
Q:
A positive liquidity premium indicates that investors prefer long-term bonds over short-term bonds.
Q:
How would you classify the typical drug companys strategy in the 1970s and 1980s: cost leadership, differentiation, focus, or hybrid? Explain your answer. How have their strategies changed in recent years?
Q:
What are the alternatives to merger available to the major pharmaceutical companies? What are the advantages and disadvantages of each alternative?
Q:
Bonds with the lowest risk of default are often referred to as junk bonds.
Q:
The market segmentation theory is able to explain why interest rates on bonds of different maturities move together over time.
Q:
In your judgment, what are the likely strategic business plan objectives of the major pharmaceutical companies and why are they important?
Q:
According to the expectations theory, the interest rate on a long-term bond is the average of the short-term interest rates expected over the life of the long-term bond.
Q:
What was driving change in the pharmaceutical industry in the late 1990s?
Q:
The expectations theory is able to explain why yield curves are usually upward-sloping.
Q:
How would you describe Dells current implementation strategy (i.e., solo venture, shared growth/shared control, merger/acquisition, or some combination)? On what core competencies is Michael Dell relying to make this strategy work?
Q:
The interest rates on bonds of different maturities tend to move together over time.
Q:
How would you characterize Dells original business strategy (i.e., cost leadership, differentiation, niche, or some combination? Give examples to illustrate your conclusions. How has Dells strategy evolved over time? Give examples to illustrate your answer.
Q:
An increase in income tax rates will cause the interest rates on tax-exempt municipal bonds to fall relative to the interest rate on taxable corporate securities.
Q:
In your opinion, what market need(s) was Dell able to satisfy better than his competition?
Q:
The risk premium on corporate bonds becomes smaller as the liquidity of the bonds falls.
Q:
Who are Dells primary customers? Current and potential competitors? Suppliers? How would you assess Dells bargaining power with respect to its customers and suppliers? What are Dells strengths/weaknesses versus it current competitors?