1) If a petrochemical firm that used oil

1) If a petrochemical firm that used oil as feedstock merged with an oil producer that had large oil reserves and a drilling subsidiary, this would be a vertical merger.TrueFalse2) Which of the following statements is most CORRECT?a. If a company that produces military equipment merges with a company that manages a chain of motels, this is an example of a horizontal merger. b. Acquiring firms send a signal that their stock is undervalued if they choose to use stock to pay for the acquisition. c. A defensive merger is one where the firm?s managers decide to merge with another firm to avoid or lessen the possibility of being acquired through a hostile takeover. d. If there are no synergistic benefits to be gained from a merger, the acquiring company will stop its plans for the merger. However, if synergistic gains are large, plans for the merger will continue. In fact, the greater the synergistic gains, the smaller the gap between the target?s current price and the maximum the acquiring company could pay because of the acquiring company?s upper hand in the merger. e. In a liquidation, the firm?s existing stockholders are given new stock representing separate ownership rights in the division that was divested. The division establishes its own board of directors and officers, and it becomes a separate company. 3) Leveraged buyouts (LBOs) occur when a firm?s managers, generally backed by private equity groups, try to gain control of a publicly owned company by buying shares in the company using large amounts of borrowed money.TrueFalse4) Which of the following actions does NOT help managers defend against a hostile takeover?a. Granting lucrative golden parachutes to senior managers. b. Establishing a poison pill provision. c. Retiring long-term debt early to reduce total debt on the balance sheet which will increase the firm?s financial position. d. Establishing a super-majority provision in the company?s bylaws to raise the percentage of the board of directors that must approve an acquisition from 50% to 75%. e. Finding a white squire that will buy enough of the target firm?s shares to block the hostile takeover. 5) Which of the following statements is most CORRECT?a. Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger. b. Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes. Thus, firms with excess cash rarely undertake mergers. c. Research of U.S. firms suggests that managers? personal motivations have had little, if any, impact on firms? decisions to merge. d. Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what?s probably a lower cost, research of U.S. firms suggests that in most cases, diversification through mergers does not increase the firm?s value. e. The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations, and the higher the probability that the merger will be completed.6) 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.TrueFalse7) The distribution of synergistic gains between the stockholders of two merged firms is almost always based strictly on their respective market values before the announcement of the merger.TrueFalse8) In a merger with true synergies, the post-merger value exceeds the sum of the separate companies? pre-merger values.TrueFalse9) A congeneric merger is one where the merging firms operate in related businesses but do not necessarily produce the same products or have a producer-supplier relationship.TrueFalse10) A joint venture is one in which two, or sometimes more, independent companies agree to combine resources in order to achieve a specific objective, usually limited in scope.TrueFalse

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