1. A firm earns a pretax profit of $30 per share. It pays a corporate tax of $6 per share (20% tax rate) in taxes. The firm pays the remaining amount in dividends to a shareholder in the 30% tax bracket. The company is correctly valued on the Stock exchange and operating under the classical taxation system?

• A.This investor should prefer dividends

• B.This investor should not have a preference

• C.This investor should prefer a share repurchase

• D. This investor should prefer capital gains

2. The statement that the undervaluation of targets is less likely to be the main reason for takeover activity is:

• A.true as the bidding company management may have private information.

• B. false as bidding company management may be aware of alternative and/or better uses for the target's assets.

• C. false as markets have been shown to be inefficient.

• D. true as such opportunities are rarely found due to market efficiency.

3.

The returns to acquirer shareholders may be explained by:

• a.tax loss benefits of a target.

• b. reduction in agency costs due to the method of financing the takeover

• c. acquirer management over-confidence in their valuation of targets.

• d. economies of scale in operations which may reduce costs.