1. Legal procedures that a firm can use to acquire another firm are (select all that apply)

a. Junk bond acquisition

b. Merger (or consolidation)

c. Acquisition of assets

d. Acquisition of stock through a Tender Offer

e. Seasoned equity issue

2. If a firm acquires another firm in the same industry, this is known as a... (select all that apply)

a. horizontal acquisition

b. leveraged buyout (LBO) acquisition

c. vertical acquisition

d. conglomerate acquisition

3. Synergy occurs when the performance of the combined entity is better than the performance of separate entities. Synergy is the reason why the combined value of the firm (target+ acquirer) increases slightly at the M&A announcement. All of the following are sources of synergy, except:

a. revenue enhancement b. empire building c. cost reductions d. reducing workforce (firing workers) in overlapping resources e. eliminating inefficiencies in the target firm f. replacing existing "toad kissing" management (see class slides for explanation) g. tax gains (lower tax payments)

4. Why do acquiring firm shareholders gain so little or even lose (in firm value) when the M&A is announced? (select all that apply):

a. Anticipated merger gains may not be fully achieved and then the acquirer is overpaying for the target b.There is no upside to be gained as the price paid for the target might equal targets firm value, including all the synergies between target and acquirer c. Acquirer management might be pursuing goals other than shareholder wealth maximization, such as empire building

Thank you so much! I'd really appreciate it if you could explain number 4!!