Investment Banking
Mock Exam
Course Introduction
Investment Banking explores the fundamental principles, strategies, and operations of investment banks within the global financial system. The course covers topics such as the structure and roles of investment banks, securities underwriting, mergers and acquisitions, risk management, capital raising, and corporate advisory services. Students will examine real-world industry practices, regulatory environments, ethical considerations, and current trends shaping investment banking. By the end of the course, students will develop a comprehensive understanding of how investment banks facilitate capital flows, drive business growth, and contribute to the broader economy.
Recommended Textbook Mergers Acquisitions and Corporate Restructurings 6th Edition by Patrick A. Gaughan
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16 Chapters
294 Verified Questions
294 Flashcards
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Chapter 1: Introduction
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Q1) Contingent value rights may provide some guarantee if the acquirer's shares fall below some level.
A)True
B)False
Answer: True
Q2) The merger between Exxon and Mobil is an example of:
A)Vertical merger
B)Horizontal merger
C)Conglomerate merger
D)Reverse merger
Answer: B
Q3) In risk arbitrage the following is true:
A)Investors may expect the bidder's stock price to fall
B)Investors may expect the target's stock price to rise
C)Both a and b
D)Neither a and b
Answer: C
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Chapter 2: History of Mergers
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Q1) The Inco-ESB deal was the first hostile takeover in the United States.
A)True
B)False Answer: False
Q2) Which of the following types of deals were common in the first merger wave?
A)Horizontal
B)Vertical
C)Oligopolistic
D)None of the above
E)a, b, and c
Answer: E
Q3) The 1940s were a period of intense M&A activity.
A)True
B)False
Answer: False
Q4) The United Technologies takeover of Otis Elevator is an example of a failed merger.
A)True
B)False Answer: False
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Chapter 3: Legal Framework
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Q1) The European Union has finally adopted one consistent set of takeover rules which all members must abide by.
A)True
B)False
Answer: False
Q2) The Celler Kefauver Act required bidders and targets to file with the Justice Department and Federal Trade Commission in advance of completing a merger or acquisition.
A)True
B)False Answer: False
Q3) 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
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Chapter 4: Merger Strategy
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Q1) Varaiya found:
A)Higher premiums in horizontal deals
B)Evidence of a winner's curse
C)Related diversification generates positive gains
D)Vertical deals decrease shareholder value
Q2) The Merck-Medco deal is an example of related diversification.
A)True
B)False
Q3) United Airlines' merger with Continental Airlines is an example of:
A)Vertical integration
B)Conglomerate formation
C)Horizontal integration
D)None of the above
Q4) Bradley, Desai, and Kim found:
A)Horizontal deals yield greater gains than vertical deals
B)Evidence of the winner's curse
C)Tender offers yield gains for target shareholders
D)Bad bidders make good targets
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6
Chapter 5: Antitakeover Measures
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Q1) Poison pills can increase shareholder values through facilitating an auction process.
A)True
B)False
Q2) Poison pill adoptions have:
A)Increased in recent years
B)Deceased in recent years
C)Been stable
D)Have slowly and steadily increased
Q3) 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
Q4) Flip-in provisions allow holders of rights to acquire stock in the target, as opposed to flip-over rights, which allow holders to acquire stock in the acquirer.
A)True
B)False
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Chapter 6: Takeover Tactics
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Q1) The target will generally pay the insurgent's costs of a proxy fight even if the fight is not successful.
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) Bange and Mazzeo found that target companies whose CEO and chairman were the same person were more likely to be recipients of bypass offers.
A)True
B)False
Q4) Which of the following professionals are often members of a bidder's tender offer team?
A)Lawyers
B)Investment bankers
C)Accountants
D)All of the above
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Chapter 7: Hedge Funds As Activist Investors
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Q1) There is research which supports the view that Investments in activist funds tend to outperform nonactivist hedge fund investments.
A)True
B)False
Q2) Which of the following is not an example of an activist hedge funds?
A)Carl Icahn Enterprises
B)Relational Investors
C)Goldman Sachs
D)Jana
Q3) Research, such as the work of Huang, found that companies which had activists in their shareholder base tended to receive higher takeover premiums when they are sold.
A)True
B)False
Q4) 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
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Chapter 8: Going-Private Transactions and Leveraged Buyouts
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Q1) In his study of buyouts in the 1980s, Kaplan found post-buyout CEO ownership percentages:
A)Fell
B)Rose
C)No consistent pattern
D)None of the above
Q2) The first LBOs occurred in the fourth merger wave.
A)True
B)False
Q3) Private equity firm is a more modern name for LBO firms.
A)True
B)False
Q4) Kaplan found that the tax benefits in LBOs were:
A)Predictable
B)Built into the takeover premium
C)Did not affect the premium
D)Both a and c
E)Both a and b
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Chapter 9: The Private Equity Market
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Q1) Drexel Burnham and Lambert and Michael Milken were pioneers in the development of the hedge fund industry.
A)True
B)False
Q2) Officer et al.found that target companies received higher takeover premiums in club deals.
A)True
B)False
Q3) Private equity firms used to be referred to as LBO firms.
A)True
B)False
Q4) 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
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Chapter 10: The Junk Bond and the Leveraged Loan Market and
Stapled Financing
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Q1) The fallout from the S&L crisis caused the market supply of high-yield bonds to sharply rise.
A)True
B)False
Q2) Junk bond-financed takeovers were mainly concentrated in specific industries that were deregulated.
A)True
B)False
Q3) Asquith et al.showed that a failure to consider which of the following was a flaw in the Altman and Namacher junk bond studies?
A)Bond returns
B)Aging
C)Bond ratings
D)None of the above
E)All of the above
Q4) 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
Page 12
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Chapter 11: Corporate Restructuring
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Sample Questions
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) First Data shareholders were able to realize increased value when Western Union was spun off.
A)True
B)False
Q3) The trend in European sell-offs is opposite that of the United States.
A)True
B)False
Q4) The sale of Miller by Altria accomplished what:
A)Narrowed Altria's strategic focus
B)Improved Altria's overall financial performance
C)Enabled Inbev to gain market share
D)All of the above
E)Both a and b
F)Both a and c
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Chapter 12: Restructuring in Bankruptcy
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Q1) Laws regulating corporate reorganization in bankruptcy are more liberal from the corporate debtor's perspective in the United States than in Europe and Canada.
A)True
B)False
Q2) Larger companies tend to do better in Chapter 11 bankruptcy than smaller ones.
A)True
B)False
Q3) The Crystal Oil Company was the first major prepackaged bankruptcy.
A)True
B)False
Q4) A reorganization plan in Chapter 11 is part of a larger document called a disclosure statement.
A)True
B)False
Q5) In the United States, a company may only file for Chapter 11 bankruptcy protection one time.
A)True
B)False
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Chapter 13: Corporate Governance
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Q1) 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
Q2) Research, such as the study by Fich and Shivdasani, has shown that companies that have over half of the outside directors sitting on three or more boards have which of the following?
A)Better financial performance but not better governance
B)Better governance but not better financial performance
C)Better governance and better financial performance
D)Neither better governance nor better financial performance
Q3) 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
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Chapter 14: Joint Ventures and Strategic Alliances
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Q1) Research by Marciukaityte, Roskelley, and Wang found:
A)Positive announcement effects to the formation of alliances in the financial services industry
B)Alliances in the financial services industry showed improvements in operating performance relative to the industry
C)Alliance partners were more likely to enter into joint ventures or M&A with each other than randomly selected firms
D)All of the above
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) Strategic alliances are common in the pharmaceutical industry.
A)True
B)False
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Chapter 15: Valuation
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Sample Questions
Q1) Moeller, Schlingemann, and Stulz's research shows that during the period 1998-2001, acquiring firm shareholders gained a total of $240 billion!
A)True
B)False
Q2) In thin markets float shares are not as plentiful.
A)True
B)False
Q3) Research by Roach showed:
A)Merger premiums have risen over time
B)Strategic mergers provide more synergistic benefits
C)Strategic focus is not a determinant of merger premiums.
D)All of these
E)Both a and b
Q4) For the bidder to enjoy an increase in EPS following a series of acquisitions, and in effect, play the P/E game, the following must be true:
A)Post-deal P/E ratio must not decline
B)Acquirer must pay continually lower premiums with each deal
C)The bidder must make fewer deals over time
D)None of the above
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Chapter 16: Tax Issues in Mergers & Acquisitions
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Q1) In a Type B reorganization in the United States, cash may constitute no more than 20% of the consideration paid for the target's shares.
A)True
B)False
Q2) In the United States, a transaction may be partially taxable if the consideration is a combination of stock and cash.
A)True
B)False
Q3) Research seeking to find the existence of asset basis step-up as a motivating factor for mergers and acquisitions before the Tax Reform Act of 1986, such as research by Auerbach and Reishus, confirmed that asset basis step-up was a significant motivating factor.
A)True
B)False
Q4) There are different types of Type D reorganizations and one type covers acquisitions while another type covers breakups such as spinoffs.
A)True
B)False
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