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Assume the following balance sheets are stated at book value. Assume the following balance sheets are stated at book value. Suppose the fair market value of Loaf's fixed assets is $7,200 versus the $3,300 book value shown.Meat pays $10,200 for Loaf and raises the needed funds through an issue of long-term debt.Assume the purchase method of accounting is used.The post-merger balance sheet of Meat Co.will have total debt of ______ and total equity of ______. A) $1,600; $11,500 B) $1,600; $15,400 C) $10,200; $15,400 D) $14,500; $11,500 E) $14,500; $15,400 Suppose the fair market value of Loaf's fixed assets is $7,200 versus the $3,300 book value shown.Meat pays $10,200 for Loaf and raises the needed funds through an issue of long-term debt.Assume the purchase method of accounting is used.The post-merger balance sheet of Meat Co.will have total debt of ______ and total equity of ______.


A) $1,600; $11,500
B) $1,600; $15,400
C) $10,200; $15,400
D) $14,500; $11,500
E) $14,500; $15,400

F) A) and B)
G) A) and C)

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Defensive merger tactics are designed to thwart unwanted takeovers and mergers.Do such activities work to the advantage of shareholders all of the time? Are these types of activities ethical? Who do you think benefits the most from these activities?

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Good students will recognize that defens...

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Dressler,Inc.,is planning on merging with Weston Foods.Dressler will pay Weston's shareholders the current value of its stock in shares of Dressler stock.Dressler's currently has 6,200 shares of stock outstanding at a market price of $30 a share.Weston's has 2,200 shares outstanding at a price of $25 a share.How many shares of stock will be outstanding in the merged firm?


A) 6,840 shares
B) 7,061 shares
C) 7,200 shares
D) 8,033 shares
E) 8,609 shares

F) B) and D)
G) None of the above

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Which one of the following statements is correct?


A) Firms with large net operating losses tend to be acquiring firms rather than target firms.
B) The leverage associated with an acquisition increases the tax liability of the acquiring firm.
C) If either an increase or a decrease in the level of production causes the average cost per unit to increase then the firm is currently operating at its optimal production level.
D) Firms can always benefit from economies of scale if they increase the size of their firm through acquisitions.
E) If a firm uses it surplus cash to acquire another firm then the shareholders of the acquiring firm immediately incur a tax liability related to the transaction.

F) D) and E)
G) A) and B)

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The incremental cash flows of a merger can relate to changes in which of the following? I.revenue II.capital requirements III.operating costs IV.income taxes


A) I and II only
B) II, III, and IV only
C) I, III, and IV only
D) I, II, and III only
E) I, II, III, and IV

F) B) and E)
G) B) and D)

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Dixie and ten of her wealthy friends formed a group and borrowed the funds necessary to acquire 100 percent of the outstanding shares of Southern Fried Chicken.This transaction is known as a:


A) proxy contest.
B) management buyout.
C) vertical acquisition.
D) leveraged buyout.
E) unfriendly takeover.

F) B) and D)
G) All of the above

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For financial statement purposes,goodwill created by an acquisition:


A) must be amortized on a straight-line basis over 10 years.
B) must be reviewed each year and amortized to the extent that it has lost value.
C) is expensed evenly over a 20-year period.
D) never affects the profits of the acquiring firm.
E) is recorded in an amount equal to the fair market value of the assets of the target firm.

F) B) and E)
G) A) and E)

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Melvin was attempting to gain control of Western Wood Products until he realized that the existing shareholders in the firm had the right to purchase additional shares at a below-market price given his hostile takeover attempt.Thus,Melvin decided to forego investing in this firm.What term applies to the tactic used by Western Wood Products to stave off this takeover attempt?


A) pac-man defense
B) shark repellent plan
C) golden parachute provision
D) greenmail provision
E) share rights plan

F) B) and E)
G) B) and C)

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The value of a target firm to the acquiring firm is equal to:


A) the value of the target firm as a separate entity plus the incremental value derived from the acquisition.
B) the purchase cost of the target firm.
C) the value of the merged firm minus the value of the target firm as a separate entity.
D) the purchase cost plus the incremental value derived from the acquisition.
E) the incremental value derived from the acquisition.

F) All of the above
G) D) and E)

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A

In a merger the:


A) legal status of both the acquiring firm and the target firm is terminated.
B) acquiring firm retains its pre-merger legal status.
C) acquiring firm acquires the assets, but not the liabilities, of the target firm.
D) shareholders of the target firm have little, if any, say as to whether or not the merger occurs.
E) target firm continues to exist but will be a wholly owned subsidiary of the acquiring firm.

F) B) and D)
G) A) and B)

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Consider the following premerger information about Firm A and Firm B: Consider the following premerger information about Firm A and Firm B: Assume that Firm A acquires Firm B via an exchange of stock at a price of $25 for each share of B's stock.Both A and B have no debt outstanding.What will the earnings per share of Firm A be after the merger? A) $1.60 B) $1.86 C) $1.95 D) $2.02 E) $2.10 Assume that Firm A acquires Firm B via an exchange of stock at a price of $25 for each share of B's stock.Both A and B have no debt outstanding.What will the earnings per share of Firm A be after the merger?


A) $1.60
B) $1.86
C) $1.95
D) $2.02
E) $2.10

F) A) and B)
G) A) and C)

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E

Troyer Markets and Deb's Grocery are all-equity firms.Troyer Markets has 2,400 shares outstanding at a market price of $14.80 a share.Deb's Grocery has 3,200 shares outstanding at a price of $28 a share.Deb's Grocery is acquiring Troyer Markets for $37,500 in cash.What is the merger premium per share?


A) $0
B) $0.825
C) $1.108
D) $1.216
E) $1.320

F) B) and C)
G) A) and E)

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The current president and vice-presidents of Mountain Top Consulting have decided to form a private investment group with the sole purpose of purchasing Mountain Top Consulting.These individuals have found a lender who will lend them 85 percent of the purchase cost if they pledge their personal assets as collateral for the loan.The current officers agree to this arrangement,borrow the funds,and purchase Mountain Top Consulting.The purchase of this firm is referred to as a:


A) conglomeration.
B) proxy contest.
C) merger.
D) leveraged buyout.
E) consolidation.

F) C) and D)
G) D) and E)

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The Cat Box acquired The Dog House.As part of this transaction,both firms ceased to exist in their prior form and combined to create an all-new entity,Animal World.Which one of the following terms best describes this transaction?


A) divestiture
B) consolidation
C) tender offer
D) spinoff
E) conglomeration

F) B) and C)
G) A) and E)

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If an acquisition does not create value and the market is smart,then the:


A) earnings per share of the acquiring firm must be the same both before and after the acquisition.
B) earnings per share can change but the stock price of the acquiring firm should remain constant.
C) price per share of the acquiring firm should increase because of the growth of the firm.
D) earnings per share will most likely increase while the price-earnings ratio remains constant.
E) price-earnings ratio should remain constant regardless of any changes in the earnings per share.

F) D) and E)
G) A) and E)

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B

Firm A is being acquired by Firm B for $54,000 worth of Firm B stock.The incremental value of the acquisition is $5,600.Firm A has 2,400 shares of stock outstanding at a price of $19 a share.Firm B has 2,700 shares of stock outstanding at a price of $50 a share.What is the actual cost of the acquisition using company stock?


A) $50,509
B) $52,276
C) $53,200
D) $56,780
E) $60,600

F) B) and D)
G) B) and E)

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Which of the following statements correctly apply to a merger? I.The titles to individual assets of the acquired firm must be transferred into the acquiring firm's name. II.The merged firm will retain the use of the acquiring company's name. III.The acquiring firm does not have to seek approval for the merger from its shareholders. IV.The shareholders of the acquired company must approve the merger.


A) I and III only
B) II and IV only
C) I, II, and III only
D) I, II, and IV only
E) I, II, III, and IV

F) D) and E)
G) B) and C)

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The Cycle Stop has 1,600 shares outstanding at a market price per share of $8.48.Kate's Wheels has 1,750 shares outstanding at a market price of $13 a share.Neither firm has any debt.Kate's Wheels is acquiring The Cycle Stop for $15,000 in cash.What is the merger premium per share?


A) $0.27
B) $0.46
C) $0.90
D) $1.43
E) $2.52

F) C) and E)
G) A) and E)

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Firm A is acquiring Firm B for $75,000 in cash.Firm A has 4,500 shares of stock outstanding at a market value of $27 a share.Firm B has 2,500 shares of stock outstanding at a market price of $29 a share.Neither firm has any debt.The incremental value of the acquisition is $2,200.What is the price per share of Firm A's stock after the acquisition?


A) $25.98
B) $26.45
C) $26.93
D) $27.00
E) $27.33

F) All of the above
G) B) and E)

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The Sweet Shoppe and Candy Land are all-equity firms.The Sweet Shoppe has 500 shares outstanding at a market price of $96 a share.Candy Land has 2,700 shares outstanding at a price of $24 a share.The Sweet Shoppe is acquiring Candy Land for $62,000 in cash.The incremental value of the acquisition is $3,600.What is the net present value of acquiring Candy Land to The Sweet Shoppe?


A) $1,600
B) $6,400
C) $6,700
D) $7,200
E) $7,700

F) C) and D)
G) B) and E)

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