21. If the value of the combined firm is greater than the sum value of the individual firms, then we call this ____________.

a) Hubris

b) Synergy

c) Expropriation

d) Diversification

22. Which of the following statements concerning mergers is correct?

a. A conglomerate merger is a merger of firms in the same general industry, but for which no customer or supplier relationship exists.

b. A horizontal merger is a combination of two firms that produce the same type of good or service.

c. A congeneric merger is a merger of companies in totally different industries.

d. Congeneric mergers tend to offer the greatest synergistic benefits.

23. Which of the following statements is correct?

a. A conglomerate merger occurs when a firm combines with another firm in the same industry.

b. Regulations in the United States prohibit acquiring firms from using common stock to purchase another firm.

c. Defensive mergers are designed to make a company less vulnerable to a takeover.

d. If a company that produces military equipment merges with a company that manages a chain of motels, this is an example of a horizontal merger.

24. Which of the following statements is correct?

a. Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes. Thus, firms with excess cash rarely undertake mergers.

b. The smaller the synergistic benefits of a particular merger, the greater the incentive to bargain in negotiations, and the higher the probability that the merger will be completed.

c. Since mergers are frequently financed by debt more than equity, financial economies that imply a lower cost of debt or greater debt capacity are rarely a relevant rationale for mergers.

d. Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification such as more stable earnings. However, since shareholders are free to diversify their own holdings at lower cost, such a rationale is generally not a valid motive for publicly held firms.

25. ______________ is when a target firm seeks out a friendly firm to take them over instead of being bought out in a hostile takeover.

a Pacman

b Green mail

c White Knight

d Standstill