Mergers and Acquisitions Practice Exam
Course Introduction
This course provides a comprehensive overview of mergers and acquisitions (M&A), examining the strategic, financial, legal, and organizational aspects of the transaction process. Students will explore the motivations behind M&A activity, valuation techniques, deal structuring, negotiation strategies, and post-merger integration challenges. Emphasis is placed on real-world case studies to illustrate the complexities and dynamics involved in successful and unsuccessful transactions. By the end of the course, students will gain practical skills and analytical tools essential for participating in M&A activities within corporate and investment banking settings.
Recommended Textbook Mergers Acquisitions and Corporate Restructurings 6th Edition by Patrick A. Gaughan
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294 Flashcards
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Chapter 1: Introduction
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Sample Questions
Q1) A letter of intent:
A)Is legally required in all U.S.deals
B)Sets for more detailed terms than a term sheet
C)Is more common in closely held acquisitions
D)None of the above
Answer: B
Q2) One of the advantages of an asset acquisition is that it may not be necessary to solicit approval from its own shareholders.
A)True
B)False
Answer: True
Q3) 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
Q4) SPACs have not been popular since the 1990s.
A)True
B)False
Answer: False
Page 3
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Chapter 2: History of Mergers
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Sample Questions
Q1) Which of the following merger waves were truly global?
A)First
B)Second
C)Third
D)Fifth Answer: D
Q2) LBOs became increasingly popular during the fourth merger wave.
A)True
B)False
Answer: True
Q3) In the 2000s, which of the following regions/nations exhibited a pattern of heightened M&A volume although the total level varied by the size of the economy?
A)Central and South America
B)Australia
C)Europe
D)All of these
E)None of the above
Answer: D
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Chapter 3: Legal Framework
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Q1) Aktas, DeBodt, and Roll found that the greater the adverse impact on European rivals resulting from deals by foreign companies, the more likely that regulators would move to oppose the deal.
A)True
B)False
Answer: True
Q2) If less than the requested number of shares are tendered, the Williams Act requires that the bidder must purchase the amount that were tendered anyway.
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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Sample Questions
Q1) Markides and Oyon found positive announcement effects for acquisitions by U.S.firms of:
A)Continental European targets
B)British or Canadian target firms
C)South and Central American firms
D)Asian companies
Q2) Doukas and Travlos found that, unlike many domestic acquisitions, acquirers enjoyed positive (although not statistically significant)) returns when they acquired targets in countries in which they did not previously have operations.
A)True
B)False
Q3) Haywood and Hambrick found:
A)Horizontal integration yields positive shareholder wealth effects
B)Horizontal deals yield negative shareholder wealth effects
C)Hubris-related deals have higher premiums
D)There is a diversification discount
Q4) Revenue enhancing synergies are more difficult to achieve than cost economies
A)True
B)False
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Chapter 5: Antitakeover Measures
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Sample Questions
Q1) Poison pills can increase shareholder values through facilitating an auction process.
A)True
B)False
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) Research shows that changing the state of incorporation:
A)Had no significant shareholder wealth effects
B)Resulted in increased shareholder wealth effects
C)Resulted in decreased shareholder wealth effects
D)None of the above
Q4) Malatesta and Walking found that, on average, the managerial ownership percentage was significantly less for firms that adopted poison pills compared with industry averages.
A)True
B)False
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Chapter 6: Takeover Tactics
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Sample Questions
Q1) The tender offer was first introduced in the Inco - ESB takeover battle.
A)True
B)False
Q2) Toe holds are usually established in the vast majority of tender offers.
A)True
B)False
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) Assume that Company A makes a $40-per-share offer for Company B, which now trades at $30 per share.Also assume that the deal is expected to close in 90 days.If the deal closes, then the risk arbitrager's return would be:
A)20%
B)30%
C)35%
D)50%
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Chapter 7: Hedge Funds As Activist Investors
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Q1) 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
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) There is research which supports the view that Investments in activist funds tend to outperform nonactivist hedge fund investments.
A)True
B)False
Q4) 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
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Chapter 8: Going-Private Transactions and Leveraged Buyouts
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Sample Questions
Q1) Private equity firm is a more modern name for LBO firms. A)True
B)False
Q2) 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
Q3) Unsecured debt is sometimes also called subordinate debt. A)True B)False
Q4) The first LBOs occurred in the fourth merger wave. A)True B)False
Q5) In the United States two-tiered tender offers are not that common any more. A)True B)False
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Chapter 9: The Private Equity Market
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Sample Questions
Q1) Private equity firms have typically been compensated according to the following "formula":
A)2% of invested capital
B)5 and 1
C)2 and 20
D)None of the above
Q2) Phalippou and Gottschalg analyzed the same return data as Kaplan and Schoar but found that private equity returns trailed the S&P 500 when unexited deals were taken into account.
A)True
B)False
Q3) Glode and Green theorize that the findings of Kaplan and Schoar may be due to insufficient disclosure by private equity firms.
A)True
B)False
Q4) Drexel Burnham and Lambert and Michael Milken were pioneers in the development of the hedge fund industry.
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) Ma, Rao, and Peterson showed that the junk bond market was so resilient in the mid-1980s that the bankruptcy of LTV had little impact of bond default probabilities.
A)True
B)False
Q2) Highly confident letters can allow small bidders to make bids for large targets.
A)True
B)False
Q3) The fallout from the S&L crisis caused the market supply of high-yield bonds to sharply rise.
A)True
B)False
Q4) 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
Page 12
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Chapter 11: Corporate Restructuring
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Sample Questions
Q1) Cash flow needs motivated the sell-off of Hertz by GM.
A)True
B)False
Q2) A defensive spin-off is where a target sells off a division to make the company less attractive to bidders.
A)True
B)False
Q3) Which of the following are common reasons cited for selling off prior acquisitions?
A)Poor fit
B)Poor performance
C)Cash flow needs
D)All of the above
E)None of the above
Q4) The sell-offs by Starwood following its acquisition of Taittinger were motivated by:
A)Eliminating a nonstrategic component
B)Eliminating a poorly performing unit
C)Raising cash to pay off debt
D)None of the above
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Chapter 12: Restructuring in Bankruptcy
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Q1) 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
Q2) Which of the following are drivers of economic failure?
A)Revenues less than costs
B)Return on investment below costs of capital
C)Profitability below expected levels
D)All of the above
Q3) 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
Q4) 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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Sample Questions
Q1) Research, such as research by David Yermack, has found which of the following with respect to larger board size:
A)Positive shareholder wealth effects
B)Negative shareholder wealth effects
C)No significant market reactions
Q2) 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
Q3) A study by Core, Holthausen, and Larker, as well as other research, indicates the following characteristics of boards would be desirable:
A)Fewer or no gray directors
B)Fewer inside board members
C)Fewer interlocked directorships
D)All of the above
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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Chapter 14: Joint Ventures and Strategic Alliances
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Sample Questions
Q1) Research shows joint ventures have all but the following:
A)Lower costs of completing deal than M&As
B)Positive shareholder announcement effects
C)Lower takeover premiums
D)Lower likelihood of antitrust concerns
Q2) Chan, Kensinger, Keown, and Martin found significant transfers of wealth from alliance partners.
A)True
B)False
Q3) Chan, Kensinger, Keown, and Martin found positive abnormal returns from strategic alliances.
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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Sample Questions
Q1) Which of the following factors will influence the initial potential dilution of earnings per share?
A)Differential in P/E ratios
B)Relative size of the two firms as measured by earnings
C)Taxability of target earnings
D)All of the above
E)Both a and b
Q2) When multiples are derived from an analysis of historical earnings, they are referred to as trailing multiples.
A)True
B)False
Q3) 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
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Chapter 16: Tax Issues in Mergers & Acquisitions
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Sample Questions
Q1) In the United States, amortization of goodwill for acquisitions prior to August 10, 1993, was not deductible for tax purposes.
A)True
B)False
Q2) In the United States, goodwill is amortized over a period not exceeding:
A)10 years
B)20 years
C)30 years
D)40 years
Q3) 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
Q4) In the United States, a transaction may be partially taxable if the consideration is a combination of stock and cash.
A)True
B)False
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