Mergers and Acquisitions Quiz Questions

1. Suppose that the market price of Company X is $45 per share and that of Company Y is $30. If X offers three-fourths a share of common stock for each share of Y, the ratio of exchange of market prices would be:

a) 0.667

b) 1.0

c) 1.125

d) 1.5

2. Empirical evidence on acquisitions indicates ___________ excess returns on average to the shareholders of the selling company, and ___________ excess returns on average to those of the buying company.

a) no; no

b) Substantial; no

c) No; substantial

d) Substantial; substantial

3. Which bank merged with ICICI Bank in 2001?

a) Canara Bank

b) Travancore Bank

c) Bank of Madura

d) Global Trust Bank

4. M&A strategy is said to be a 3-legged stool. "Strategy" and "Objectives" are two of the three legs of the stool. What's the third?

a) Growth

b) Mission

c) Multiple Arbitrage

d) Cash Flow

5. Michael Porter believes the significant synergy corporations’ gain through mergers and acquisitions is:

a) Tax Saving

b) Brand Enhancement

c) Product Extension

d) Human Capital

6. Medeiros Burgers and Arepas is a local 2-unit quick service restaurant. Its owner, Phoebe Medeiros, bought the business from her mother using a $5 million bank loan. Despite enjoying a long list of customers and rave reviews about its best burgers and arepas, the business is struggling to pay its interest expense.

Last week, Phoebe received an offer letter to sell to McDonald's, a large publicly traded corporation. The offer letter highlighted several reasons for an acquisition, but the most prominent was its weighted cost of cost of debt.

With all else being equal, what would be the impact to Medeiros Burgers and Arepas' profitability?

a) Decreased Profitability

b) Increased Profitability

c) No change to profitability

7. What is enterprise value?

a) Enterprise value is calculated as minority interest and preferred shares, minus total cash and cash equivalents.

b) Enterprise value is calculated as market cap plus debt, minority interest less preferred shares, minus total cash and cash equivalents.

c) Enterprise value is calculated as market cap plus debt, minority interest and preferred shares

d) Enterprise value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

e) Enterprise value is calculated as market cap plus debt

8. Match the Numbers against the Alphabets

1. Consolidation A. acquirer acquires all of target's assets and liabilities. Target ceases to exist as separate entity.

2. Subsidiary merger B. typically occurs when the target has well-known brand that is worth retaining (i.e. Merrill Lynch not Countrywide)

3. Statutory merger C. both companies cease to exist in prior form, and together form new Co.

Answer: 1-C, 2-B, 3-A

9. A public offer made by one firm to buy shares directly from the stockholders of another firm is called

A) A poison pill.

B) A merger.

C) A consolidation.

D) A share rights plan.

E) A tender offer.

10. In the early 1900s, the Standard Oil Company purchased many of its competitors in order to reduce competition and increase its share of the domestic oil market. The firm's actions are consistent with a strategy of making acquisitions to __________.

A) Enhance managerial control

B) Exploit synergies

C) Enhance revenues

D) Reduce taxes

E) Reduce capital needs

11. When evaluating an acquisition, you should

a) Concentrate on book values and ignore market values.

b) Focus on the total cash flows of the merged firm.

c) Apply the rate of return that is relevant to the incremental cash flows.

d) Ignore any one-time acquisition fees or transaction costs.

12. Which among the following internet giants has acquired Apture and Katango to enhance the user experience of its browser and social networking services?

a) Microsoft

b) Opera

c) Google

d) Facebook