Q&A Hero

Q: The relationship among interest rates on bonds with identical default risk but different maturities is called the A) time-risk structure of interest rates. B) liquidity structure of interest rates. C) yield curve. D) bond demand curve.

Q: Which of the following best defines market segmentation a. The identification of customers with common characteristics and needs b. The identification of customers with heterogeneous characteristics and needs c. The grouping of customers with different characteristics d. The process of reducing large markets into smaller markets without regard to customer characteristics e. The process of identifying the various markets that comprise an industry without regard to customer characteristics

Q: The Bush tax cut passed in 2001 reduces the top income tax bracket from 39 percent to 35 percent over the next ten years. As a result of this tax cut, the demand for municipal bonds should shift to the ________ and the interest rate on municipal bonds should ________. A) right; decline B) right; increase C) left; decline D) left; increase

Q: Which of the following represent key components of the acquisition process a. Business plan b. Integration plan c. Search plan d. Negotiation process e. All of the above

Q: If municipal bonds were to lose their tax-free status, then the demand for Treasury bonds would shift ________, and the interest rate on Treasury bonds would ________. A) rightward; fall B) rightward; rise C) leftward; fall D) leftward; rise

Q: All of the following represent commonly found components of a well-constructed business plan except for a. Mission statement b. Strategy c. Acquisition plan d. Objectives e. Tactical or implementation plans

Q: When a municipal bond is given tax-free status, the demand for Treasury bonds shifts ________, and the interest rate on Treasury bonds ________. A) leftward; rises B) leftward; falls C) rightward; rises D) rightward; falls

Q: The acquisition plan establishes a schedule of milestones to keep the process on track and clearly defines the authority and responsibilities of the individual charged with managing the acquisition process. True or False

Q: When a municipal bond is given tax-free status, the demand for municipal bonds shifts ________, causing the interest rate on the bond to ________. A) leftward; rise B) leftward; fall C) rightward; rise D) rightward; fall

Q: Which of the following statements are true? A) Because coupon payments on municipal bonds are exempt from federal income tax, the expected after-tax return on them will be higher for individuals in higher income tax brackets. B) An increase in tax rates will increase the demand for Treasury bonds, lowering their interest rates. C) Interest rates on municipal bonds will be higher than on comparable bonds without the tax exemption. D) Only A and B are true statements.

Q: The acquisition plan provides the detail needed to implement effectively the firms business strategy, True or False

Q: Which of the following statements are true? A) Because coupon payments on municipal bonds are exempt from federal income tax, the expected after-tax return on them will be higher for individuals in higher income tax brackets. B) An increase in tax rates will increase the demand for municipal bonds, lowering their interest rates. C) Interest rates on municipal bonds will be lower than on comparable bonds without the tax exemption. D) All of the above are true statements. E) Only A and B are true statements.

Q: Acquisition plan objectives should be directly linked to key business plan objectives. True or False

Q: A decrease in marginal tax rates would likely have the effect of ________ the demand for municipal bonds and ________ the demand for U.S. government bonds. A) increasing; increasing B) increasing; decreasing C) decreasing; increasing D) decreasing; decreasing

Q: Overpayment risk involves the dilution of EPS or a reduction in its growth rate resulting from paying significantly more than the economic value of the acquired firm. True or False

Q: An increase in marginal tax rates would likely have the effect of ________ the demand for municipal bonds and ________ the demand for U.S. government bonds. A) increasing; increasing B) increasing; decreasing C) decreasing; increasing D) decreasing; decreasing

Q: Accounting considerations rarely affect the decision to buy another business rather than to build the business internally. True or False

Q: If income tax rates rise, then A) the prices of municipal bonds will fall. B) the prices of Treasury bonds will rise. C) the interest rate on Treasury bonds will rise. D) the interest rate on municipal bonds will rise.

Q: Management can obtain insight into the firms probable future cash requirements and in turn its value by determining its position in its industrys product life cycle. True or False

Q: If income tax rates were lowered, then A) the interest rate on municipal bonds would fall. B) the interest rate on Treasury bonds would rise. C) the interest rate on municipal bonds would rise. D) the price of Treasury bonds would fall.

Q: A diversification strategy involves a firm moving into only those businesses which are unrelated to the firms current core business. True or False

Q: (I) If a corporate bond becomes less liquid, the interest rate on the bond will fall. (II) If a corporate bond becomes less liquid, the interest rate on Treasury bonds will fall. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

Q: A corporate mission statement seeks to describe the corporations purpose for being and where the corporation hopes to go. True or False

Q: (I) If a corporate bond becomes less liquid, the demand for the bond will fall, causing the interest rate to rise. (II) If a corporate bond becomes less liquid, the demand for Treasury bonds does not change. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

Q: When the corporate bond market becomes more liquid, other things equal, the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________. A) right; right B) right; left C) left; left D) left; right

Q: A collection of markets is said to comprise an industry. True or False

Q: When the corporate bond market becomes less liquid, other things equal, the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________. A) right; right B) right; left C) left; left D) left; right

Q: Planning in advance of a merger or an acquisition necessarily slows down decision making. True or False

Q: (I) The risk premium widens as the default risk on corporate bonds increases. (II) The risk premium widens as corporate bonds become less liquid. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

Q: Good planning expedites sound decision making. True or False

Q: Corporate bonds are not as liquid as government bonds because A) fewer bonds for any one corporation are traded, making them more costly to sell. B) the corporate bond rating must be calculated each time they are traded. C) corporate bonds are not callable. D) all of the above. E) only A and B of the above.

Q: Contingency plans are actions that are taken as an alternative to the firms current business strategy. True or False

Q: If Moody's or Standard and Poor's downgrades its rating on a corporate bond, the demand for the bond ________ and its yield ________. A) increases; decreases B) decreases; increases C) increases; increases D) decreases; decreases

Q: A merger or acquisition is generally not considered an example of an implementation strategy. True or False

Q: Moody's and Standard and Poor's are agencies that A) help investors collect when corporations default on their bonds. B) advise municipal bond issuers on the tax exempt status of their bonds. C) produce information about the probability of default on corporate bonds. D) maintain liquid markets for corporate bonds.

Q: The implementation strategy refers to the way in which a firm chooses to implement its business strategy. True or False

Q: As a result of the subprime collapse, the demand for low -quality corporate bonds ________, the demand for high-quality Treasury bonds ________, and the risk spread ________. A) increased; decreased; was unchanged B) decreased; increased; increased C) increased; decreased; decreased D) decreased; increased; was unchanged

Q: Stakeholders only include a firms shareholders. True or False

Q: The spread between interest rates on low-quality corporate bonds and U.S. government bonds ________ during the Great Depression. A) was reversed B) narrowed significantly C) widened significantly D) did not change

Q: The joint venture may represent an attractive alternative to a merger or acquisition. True or False

Q: (I) An increase in default risk on corporate bonds shifts the demand curve for corporate bonds to the left. (II) An increase in default risk on corporate bonds shifts the demand curve for Treasury bonds to the right. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

Q: A cost leadership strategy is most appropriate when pursued concurrently by a number of firms in the same industry with approximately the same market share. True or False

Q: (I) An increase in default risk on corporate bonds shifts the demand curve for corporate bonds to the right. (II) An increase in default risk on corporate bonds shifts the demand curve for Treasury bonds to the left. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

Q: The market or markets in which a firm chooses to compete should reflect the fit between the firms primary strengths and its ability to satisfy customers needs better than the competition. True or False

Q: When the default risk on corporate bonds decreases, other things equal, the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________. A) right; right B) right; left C) left; left D) left; right

Q: Potential competitors include firms (both domestic and foreign) in the current market, those in related markets, current customers, and current suppliers. True or False

Q: If a corporation's earnings rise, then the default risk on its bonds will ________ and the equilibrium interest rate on these bonds will ________. A) increase; decrease B) decrease; decrease C) increase; increase D) decrease; increase

Q: Market profiling entails collecting sufficient data to accurately assess and characterize a firms competitive environment within its chosen markets. True or False

Q: If a corporation begins to suffer large losses, then the default risk on its bonds will ________ and the equilibrium interest rate on these bonds will ________. A) increase; decrease B) decrease; increase C) increase; increase D) decrease; decrease

Q: While managements upfront involvement in the acquisition process is crucial, management should largely disengage from the process until the transaction is completed. True or False

Q: Holding everything else the same, if a corporation's earnings rise, then the default risk on its bonds will ________ and the expected return on those bonds will ________. A) increase; decrease B) decrease; decrease C) increase; increase D) decrease; increase

Q: Examples of management preferences used in an acquisition plan include their preference for an asset or stock purchase or openness to partial rather than full ownership of the target firm. True or False

Q: Holding everything else constant, if a corporation begins to suffer large losses, then the default risk on its bonds will ________ and the expected return on those bonds will ________. A) increase: increase B) decrease; increase C) increase; decrease D) decrease; decrease

Q: Financial risk refers to the buyers willingness and ability to leverage a transaction as well as the willingness of shareholders to accept near-term earnings per share dilution. True or False

Q: An acquisition is one of many options available for implementing a firms business plan. True or False

Q: (I) If a corporation suffers big losses, the demand for its bonds will rise because of the higher interest rates the firm must pay. (II) The spread between the interest rates on bonds with default risk and default-free bonds is called the risk premium. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false.

Q: Operating risk addresses the ability of the buyer to manage the acquired company. True or False

Q: A corporation suffering big losses might be more likely to suspend interest payments on its bonds, thereby A) raising the default risk and causing the demand for its bonds to rise. B) raising the default risk and causing the demand for its bonds to fall. C) lowering the default risk and causing the demand for its bonds to rise. D) lowering the default risk and causing the demand for its bonds to fall.

Q: Bonds with relatively high risk of default are called A) Brady bonds. B) junk bonds. C) zero coupon bonds. D) investment-grade bonds.

Q: Resource limitations in developing the acquisition plan include money, borrowing capacity, as well as management time and skills. True or False

Q: An acquisition plan is developed if management determines that an acquisition or merger is required to implement the firms business strategy. True or False

Q: Bonds with relatively low risk of default are called A) zero coupon bonds. B) junk bonds. C) investment-grade bonds. D) none of the above.

Q: The risk premium on corporate bonds becomes smaller if A) the riskiness of corporate bonds increases. B) the liquidity of corporate bonds increases. C) the liquidity of corporate bonds decreases. D) the riskiness of corporate bonds decreases. E) either B or D of the above occur.

Q: An acquisition plan defines the objectives to be achieved by acquiring another firm, managements preferences as to how the acquisition process should be managed, resources required, and the roles and responsibilities of those responsible for implementing the plan. True or False

Q: Strong sales growth and low entry barriers characterize the embryonic and growth stages of a products life cycle. True or False

Q: Which of the following long-term bonds should have the highest interest rate? A) Corporate Baa bonds B) U.S. Treasury bonds C) Corporate Aaa bonds D) Municipal bonds

Q: The evolution of the growth of a product can be characterized in four stages: embryonic, growth, maturity, and decline. This description is called a business attractiveness matrix. True or False

Q: Which of the following long-term bonds should have the lowest interest rate? A) Corporate Baa bonds B) U.S. Treasury bonds C) Corporate Aaa bonds D) Municipal bonds

Q: Coca Cola is an example of a company that pursues both a differentiation and cost leadership strategy. True or False

Q: The risk structure of interest rates is A) the structure of how interest rates move over time. B) the relationship among interest rates of different bonds with the same maturity. C) the relationship among the terms to maturity of different bonds. D) the relationship among interest rates on bonds with different maturities.

Q: Firms adopting a focus strategy compete primarily based on their superior understanding of how to satisfy their customers needs better than the competition. True or False

Q: The term structure of interest rates is A) the relationship among interest rates of different bonds with the same risk and maturity. B) the structure of how interest rates move over time. C) the relationship among the terms to maturity of different bonds from different issuers. D) the relationship among interest rates on bonds with different maturities but similar risk.

Q: Firms adopting a focus strategy tend to concentrate their efforts by selling a few products to a single market and compete primarily on price. True or False

Q: When the demand for bonds ________ or the supply of bonds ________, bond prices rise. A) increases; decreases B) decreases; increases C) decreases; decreases D) increases; increases

Q: A differentiation strategy is one in which a firms products are perceived by customers to be slightly different from other firms products in the same industry. True or False

Q: When the demand for bonds ________ or the supply of bonds ________, interest rates fall. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

Q: A differentiation strategy is one in which customers believe that various competitors have significantly different cost structures. True or False

Q: When the demand for bonds ________ or the supply of bonds ________, interest rates rise. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

Q: A cost leadership strategy can be highly destructive to the firm with the largest market share if pursued concurrently by a number of firms with very different market shares. True or False

Q: The experience curve is most important in analyzing industries with low fixed costs. True or False