A. TRUE / FALSE QUESTIONS Write either "True" or "False" on the blank preceding each question. 1. It is most desirable for a firm in financial distress to re-organize through a formal bankruptcy court proceeding, due to the lower cost of this alternative vs. an informal re-organization. 2. If an "extension" is included in a distressed firm's reorganization plan, creditors then most likely receive their payment in full. 3. The primary purpose of the U.S. bankruptcy laws is to avoid having firms that are worth more as "going concerns" put out of business by individual creditors who could force liquidation of the firm's assets. 4. The "holdout problem" is resolved in bankruptcy court by the court's ability to lump creditors into classes 5. It is easier for a firm with many creditors to informally reorganize than it is for a firm with just a few creditors to do so 6. The "relative priority doctrine" requires that the creditors of a financially distressed firm be compensated for their claims in a rigid, hierarchical order. 7. A "merger" is any combination that forms two economic units from one previous economic unit 8. Several years ago, R.J. Reynolds (a tobacco company) merged with Nabisco (a cracker and cookie company). This is an example of a vertical merger. 9. Vertical and horizontal mergers are most likely to be investigated by the U.S. Department of Justice as being anti-competitive, 10. The "market multiple method of valuing an acquisition candidate is the most difficult method to calculate, but is also generally the most accurate, 11. The value of a company depends on the present value of the firm's expected "free cash flows" (FCF) 12. Generally, the greater the synergistic benefits that may result from a merger, the more the acquiring company is willing to pay for the target company