A combination of two companies through which the acquiring company diversifies into a new product line and market and the acquired company ceases to exist as a legal entity is best described as *

conglomerate merger

vertical merger

consolidation

horizontal merger

Which among the following tools in capital budgeting does not recognize the time value of money? *

Net present value

Accounting rate of return

Discounted payback period

Internal rate of return

Computing the payback period for a capital project requires knowing this item *

The project's NPV

Useful life of the project

The company's minimum required rate of return

The project's annual cash flow

To determine the maximum price that should be paid for a target company, the incremental after-tax operating cash flows attributable to the target company are discount to their present value using the ________________ as the discount rate. *

target company's average cost of capital

the acquiring company's cost of debt

acquiring company's average cost of capital

risk-free rate

Which of the following statements is TRUE? *

The payback period of a project is a measure of the project's profitability.

The payback method of project evaluation considers all the relevant cash flows from a project but neglects the consideration of risk and time value of money.

The average rate of return (ARR) method of project evaluation considers all the relevant cash flows from a project but neglects the consideration of risk and time value of money.

The ARR of a project is a measure of the project's liquidity.

Which of the following statements is FALSE? *

The IRR is the maximum discount rate that will give a non-negative net present value.

The IRR is the discount rate that makes the net present value of a project equal to zero.

Consider an investment opportunity that costs P10,000 and promises to pay a single lump sum of P13,000 three years from now. In this situation, invested capital will increase over the life of the investment.

The IRR is the discount rate that requires the present value of a project's expected cash inflows with its net present value.

Possible sources of synergistic effects in a merger and acquisition transaction include all of the following, except *

reduction of the cost of capital through improved access to the capital markets

to balance the demand and supply in the market

elimination of duplicate managerial and support positions such as accounting and office staff.

tax benefits from cacrryback and carryforward provisions in the tax law.

If an investment has a positive Net Present Value (NPV), then *

The IRR is less than the company's cut-off rate of return

Its IRR is greater than the company's cost of capital

The cut-off rate of return exceeds the cost of capital

The cost of capital exceeds the cut-off rate of return

A combination of two companies that enlarges the acquiring company's capacity to produce its product line and in which the acquired company ceases to exist as a legal entity is best described as *

consolidation

horizontal merger

vertical merger

conglomerate merger