Financial Strategy Practice Questions - 294 Verified Questions
Financial Strategy Practice
Questions
Course Introduction
Financial Strategy explores the principles and techniques used to formulate and implement long-term financial plans that align with organizational objectives. This course examines key areas such as capital structure decisions, investment appraisal, valuation techniques, risk management, mergers and acquisitions, dividend policy, and financial forecasting. Students will gain insight into the strategic roles of corporate finance, how financial policies influence competitiveness, and the ways in which financial decisions impact firm value. Through case studies and real-world scenarios, learners will develop the skills necessary to solve complex financial problems and support effective strategic planning within an organization.
Recommended Textbook Mergers Acquisitions and Corporate Restructurings 6th Edition by Patrick A. Gaughan
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Chapter 1: Introduction
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Sample Questions
Q1) When a company sells off all of its assets, it falls under the regulation of the Investment Company Act of 1940.
A)True
B)False
Answer: True
Q2) Under a typical Lehman formula dealmakers may earn 5% of the first $1 million of the takeover price.
A)True
B)False
Answer: True
Q3) The merger between Exxon and Mobil is an example of:
A)Vertical merger
B)Horizontal merger
C)Conglomerate merger
D)Reverse merger
Answer: B
Q4) Private equity firms are frequent LBO dealmakers.
A)True
B)False
Answer: True
Page 3
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Chapter 2: History of Mergers
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Q1) Which of the following factors contributed to the end of the third merger wave?
A)Stock market downturn
B)Economic slowdown
C)Antitrust enforcement
D)None of the above
E)a, b, and c
Answer: E
Q2) Which of the following companies can trace their origins to the first merger wave?
A)General Electric
B)Kodak
C)DuPont
D)a, b, and c
E)Both b and c
Answer: D
Q3) The 1940s were a period of intense M&A activity.
A)True
B)False
Answer: False
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Chapter 3: Legal Framework
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Q1) The Securities Law of China requires holders of 5% or more of a target's stock to disclose this holding within three days of attaining that position.
A)True
B)False
Answer: True
Q2) Research by Lisa Muelbroek empirically confirmed that stock price run-ups before takeover announcements often occur.This reflects:
A)Toe Holds
B)Insider Trading
C)Anticompetitive behavior
D)None of the above
Answer: B
Q3) The eight-factor test comes from what notable case?
A)Edgar v.Mite
B)CTS v.Dynamics
C)Wellman v.Dickinson
D)United States v.Microsoft
Answer: C
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Chapter 4: Merger Strategy
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Sample Questions
Q1) Wachovia's acquisition of Golden West Financial provided significant economies of scope which enabled the bank to show steady profits even during the subprime crisis.
A)True
B)False
Q2) Which motives are often cited as reasons for M&As?
Q4) Cybo-Ottone and Murgia found positive abnormal returns for European bank merger announcements.
A)True
B)False
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Chapter 5: Antitakeover Measures
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Sample Questions
Q1) The Pac-Man defense:
A)Has found a new resurgence
B)Was done in the Bendix-Martin Marietta battle
C)Is not common today
D)Both a and b
E)Both b and c
Q2) The research of Bebchuk and Cohen found a negative relationship between firm value, as measured by Tobin's q, and the implementation of a staggered board.
A)True
B)False
Q3) The Georgeson studies showed that pill-protected companies had reduced shareholder values.
A)True
B)False
Q4) Poison pill adoptions have:
A)Increased in recent years
B)Deceased in recent years
C)Been stable
D)Have slowly and steadily increased
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Chapter 6: Takeover Tactics
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Q1) Two-tiered tender offers are sometimes referred to as front -end-loaded tender offers.
A)True
B)False
Q2) Research shows that bypass offers tend to have:
A)Higher takeover premiums
B)Lower takeover premiums
C)No impact on takeover premiums
D)None of these
Q3) The tender offer was first introduced in the Inco - ESB takeover battle.
A)True
B)False
Q4) Listokin found that dissidents' victories in proxy contests did what over his study period in the 2000s:
A)Increased over time
B)Decreased over time
C)No discernable pattern
D)None of the above
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Page 8
Chapter 7: Hedge Funds As Activist Investors
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Q1) Research, such as the work of Clifford, has established that when activists establish share position in target shareholder wealth declines.
A)True
B)False
Q2) Which of the following may be a valid criticism of activist hedge funds?
A)May cause target firms to be too short-term oriented
B)Tend to reduce target financial performance
C)Often fail to yield positive returns for investors
D)All of the above
E)None of the above
Q3) Which of the following is true?
A)Hedge funds tend to facilitate more M&As
B)Hedge funds tend to have a dampening effect on M&As
C)Hedge funds are neutral as it relates to M&A activity
D)None of the above
Q4) Research, such as the work of Greenwood and Schoar, found that financial performance of companies improve after activists establish stock positions in the firms.
A)True
B)False
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Chapter 8: Going-Private Transactions and Leveraged Buyouts
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Sample Questions
Q1) Research shows that audit fees constitute what percent of total costs of being public?
A)25% to 35%
B)Approximately 90%
C)50% to 60%
D)Roughly one third
Q2) Vertical strips:
A)Refers to acquiring targets with whom the bidder has backward relationship
B)Refers to acquiring targets with whom the bidder has forward relationship
C)Refers to participating in several layers of LBO financing
D)None of the above
Q3) Unsecured debt is sometimes also called subordinate debt.
A)True
B)False
Q4) In Hansen Trust v.SCM the court concluded: n.
A)Merrill Lynch was given favorable treatment o.
B)Use of lockup option was inappropriate p.
C)An appropriate auction was preempted q.
D)All of the above r.
E)None of the above
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Chapter 9: The Private Equity Market
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Q1) Private equity firms used to be referred to as LBO firms.
A)True
B)False
Q2) Which of the following is a way that private equity firms can extract money from the targets they take over:
A)LBOs
B)Dividend recapitalizations
C)Additional acquisitions
D)All of the above
E)None of the above
Q3) Examples of the types of institutions that become limited partners in private equity funds include:
A)insurance companies
B)pension funds
C)endowments
D)all of the above
True or False
Q4) Carried interest refers to the gains on transactions by private equity firms.
A)True
B)False
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Chapter 10: The Junk Bond and the Leveraged Loan Market and
Stapled Financing
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Q1) Which of the following factors contributed to the growth of the junk bond market?
A)Development of market makers
B)Standardized contracts
C)Changing risk perceptions
D)All of the above
E)None of the above
Q2) Altman and Kishore showed that:
A)High-yield bonds had a 4% higher average return than investment-grade bonds
B)Recovery rates varied by bond seniority
C)Returns are sometimes not closely related to risk
D)None of the above
Q3) The collapse of the junk bond market mainly ended the use of original issue high-yield bonds in the decades that followed.
A)True
B)False
Q4) Highly confident letters can allow small bidders to make bids for large targets.
A)True
B)False
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Chapter 11: Corporate Restructuring
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Q1) Sell-offs of their parts supplier units enabled GM and Ford to successfully use sell-offs to avoid union compensated-related liabilities of those units.
A)True
B)False
Q2) Boise Cascade abandoned its core business and focused on the business of Office Max, which it had previously acquired.
A)True
B)False
Q3) Involuntary divestitures generally have what effects?
A)Positive
B)Negative
C)No consistent effects
D)None of the above
Q4) First Data shareholders were able to realize increased value when Western Union was spun off.
A)True
B)False
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Chapter 12: Restructuring in Bankruptcy
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Q1) In the United States, a company may only file for Chapter 11 bankruptcy protection one time.
A)True
B)False
Q2) The initial exclusive period is how many days:
A)90
B)30
C)120
D)None of the above
Q3) George and Hwang found that firms with high distress costs had:
A)Lower leverage
B)Lower probabilities of default
C)None of the above
D)Both a and b
Q4) Larger companies tend to do better in Chapter 11 bankruptcy than smaller ones.
A)True
B)False
Q5) The debtor in possession is another name for the bankrupt company.
A)True
B)False
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Chapter 13: Corporate Governance
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Q1) Research shows that companies tend to have positive shareholder wealth effects when outside directors are added to a company's board.
A)True
B)False
Q2) A study by Hartzell, Ofek, and Yermack showed that in deals where target CEOs enjoyed extraordinary personal treatment and benefits, such as high compensation or other special benefits, shareholders received lower acquisition premiums
A)True
B)False
Q3) Lambert and Larker found that the trigger control percentage for activation of golden parachutes agreements was when a bidder acquired approximately 51% of the company outstanding stock.
A)True
B)False
Q4) Stock options are one method which may be used to align management and shareholder's interests.
A)True
B)False
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Page 15
Chapter 14: Joint Ventures and Strategic Alliances
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Q1) Enhancing R&D is a common reason why companies form joint ventures.
A)True
B)False
Q2) The following can be a reason why joint ventures may not succeed:
A)Disagreement among participants
B)Distrust among the participants
C)Payment of too high a takeover premium
D)All of the above
E)Both a and b
Q3) Vertical mergers in the United States are not subject to review by the Justice Department.
A)True
B)False
Q4) Which tends to have the lowest commitment level?
A)Strategic alliances
B)M&As
C)Joint ventures
D)Contractual agreements True or False
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Page 16
Chapter 15: Valuation
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Q1) Research shows:
A)Target shareholders earn positive returns from merger agreements
B)Target shareholders may earn even higher significant positive returns from tender offers than friendly mergers
C)Target bondholders and preferred stockholders gain from takeovers
D)All of these
E)Both a and b
F)Both b and c
Q2) Continuing value and exit value mean the same thing.
A)True
B)False
Q3) In bear markets, control premiums (relative to current market prices)) may rise.
A)True
B)False
Q4) For many years the concentrated holdings by large block holders made hostile takeovers in Europe more difficult to complete.
A)True
B)False
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Page 17
Chapter 16: Tax Issues in Mergers & Acquisitions
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Q1) In the United States, amortization of goodwill is deductible for tax purposes over a period of:
A)5 years
B)10 years
C)15 years
D)20 years
Q2) In a Type A reorganization in the United States, the following consideration may be used to acquire a target:
A)Stock
B)Cash
C)Non-equity securities
D)All of the above
Q3) In a Type B reorganization in the United States, at least what percent of the payment to the target must be stock in the acquiring company:
A)20%
B)50%
C)80%
D)100%
E)No specific percentage
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