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Site Title: Fundamentals of Financial Management, twelfth edition Book Title: Fundamentals of Financial Management, twelfth edition Book Van Horne/Wachowicz Author: Location on Student Resources > Chapter Site: 23 > Multiple choice questions Date/Time July 9, 2012 at 5:16 PM Submitted: (UTC/GMT)

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Summary of Results
29% Correct of 21 Scored items: 6 Correct: 29% 15 Incorrect: 71% More information about scoring

1.

A firm that acquires another firm as part of its strategy to sell off assets, cut costs, and operate the remaining assets more efficiently is engaging in __________. Your Answer: two-tier tender offer Correct Answer: a financial acquisition Incorrect. This is when a bidder offers a higher price to the first fixed quantity of shares tendered and a lower second price for remaining shares.

2.

A would-be acquirer's offer to buy stock directly from shareholders is referred to as __________. Your Answer: a tender offer Correct.

3.

The restructuring of a firm should be undertaken if __________. Your Answer: the restructuring is expected to increase earnings per share (EPS) next year Correct Answer: the restructuring is expected to create value for shareholders Incorrect. The restructuring should be undertaken if it increases shareholder wealth.

4.

Economies of scale, market share dominance, and technological advances are reasons most likely to be offered to justify a __________. Your Answer: financial acquisition Correct Answer: strategic acquisition Incorrect. A strategic acquisition generally is justified by economies of scale, market share dominance, and technological advances explanations.

5.

Suppose that the market price per share of Company A is $100 and that of Company B is $40. If A offers one-half (1/2) a share of common stock for each share of B, the exchange ratio with respect to market prices would be __________. Your Answer: 1.25 Correct.

6.

A reason suggested by the authors for a divestiture, such as a sell-off or spin-off, is __________. Your Answer: hubris Correct Answer: reverse synergy Incorrect. The authors are suggesting reverse synergy in this case.

7.

What is the most likely reason that a firm (who is highly profitable) might consider acquiring a firm that has had large recent losses and will continue to have losses into the near future? Your Answer: Tax-loss usage. Correct.

8.

Richard Roll makes a case with the __________ hypothesis that takeovers are motivated by bidder pride and confidence in their abilities relative to others. Your Answer: management success Correct Answer: hubris Incorrect. The hubris hypothesis argues that takeovers are motivated by bidder pride and confidence in their abilities relative to others.

9.

A merger that signals to the investors in the market place a change in strategy or operating efficiency that can not be conveyed in another manner is referred to as __________. Your Answer: strategic effect Correct Answer: the information effect Incorrect. This is generally referred to as the information effect.

10.

A firm that acquires another firm as part of its overall business strategy is engaging in __________. Your Answer: a two-tier tender offer Correct Answer: a strategic acquisition Incorrect. This is when a bidder offers a higher price to the first fixed quantity of shares tendered and a lower second price for remaining shares.

11.

The average takeover premium a target firm has historically received is closest to which of the following percentages? Your Answer: 30% Correct.

12.

What remains after we subtract operating costs and capital expenditures necessary to at least sustain cash flows from total firm revenues? Your Answer: Free cash flows. Correct.

13.

How should a successful acquisition be evaluated in the long-run? Your Answer: The acquisition is successful if the acquirer is able to diversify its asset base and reduce its overall risk. Correct Answer: The acquisition is successful if the market price of the acquirer's stock increases over what it would have been without the acquisition. Incorrect. Although this may occur, cash flows will also influence the

value of the acquirer, so the market price of the acquirer's stock should be the appropriate measure.

14.

What is the landmark piece of legislation designed to promote competition by combating monopolistic behaviors through antitrust law? Your Answer: The Antitrust Act of 1915. Correct Answer: The Clayton Act. Incorrect. The Clayton Act was a 1914 piece of legislation.

15.

A firm can acquire another firm __________. Your Answer: None of the above are methods of acquiring the target firm Correct Answer: by either purchasing the assets or the common equity of the target firm. Incorrect. The acquiring firm may either purchase the assets or the common equity of the target firm.

16.

Which of the following hypotheses attempt to explain the motivation behind creating barriers to receiving unsolicited takeover offers? Your Answer: Only the managerial entrenchment hypothesis. Correct Answer: Both the first and second answers are hypotheses that attempt to explain this motivation. Incorrect. The shareholders' interest hypothesis also helps explain the motivation.

17.

What is a business organizational model that involves the large-scale outsourcing of business functions? Your Answer: Joint venture. Correct Answer: Virtual corporation. Incorrect. This is a business venture jointly owned by two or more independent firms.

18.

A bidder that offers a higher price to the first fixed quantity of shares

tendered and a lower second price for all remaining shares is engaging in __________. Your Answer: a two-tier tender offer Correct.

19.

How do you refer to the public sale of stock in a subsidiary in which the parent usually retains majority control? Your Answer: Corporate liquidation. Correct Answer: Equity carve-out. Incorrect. This occurs when a firm, either voluntarily or forced, sells assets.

20.

By using a __________, the firm can independently control considerable assets with a very limited amount of equity. Your Answer: spin-off Correct Answer: leveraged buyout (LBO) Incorrect. A spin-off will usually involve giving up some control and says nothing regarding how debt financing will be used.

21.

As discussed in the text, the creation of a global 24-hour news and information cable network called MSNBC is an example of a __________. Your Answer: financial acquisition Correct Answer: joint venture Incorrect. This is a joint venture between Microsoft (MS) and the NBC (NBC).