Finance

The conversion price divided into the market value of a convertible bond provides the conversion ratio.Nonfinancial motives for mergers include

a) synergy.

b) the portfolio effect.

c) vertical integration.

d) synergy and vertical integration.

Assignment Print View 1. 3/29/16 9:03 PM Award: 10.00 points A convertible security is one that can be converted into common stock only at the option of the issuer. True False References True / False 2. Difficulty: Basic Learning Objective: 19-01 Convertible securities can be converted to common stock at the option of the owner. Award: 10.00 points The face value of a convertible bond divided by the conversion price equals the number of shares a bondholder will receive upon conversion. True False References True / False http://ezto.mheducation.com/hm.tpx Difficulty: Basic Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Page 1 of 20 Assignment Print View 3. 3/29/16 9:03 PM Award: 10.00 points The conversion price divided into the market value of a convertible bond provides the conversion ratio. True False References True / False 4. Difficulty: Basic Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Award: 10.00 points The conversion premium represents the dollar difference between the conversion value and the pure bond value. True False References True / False 5. Difficulty: Basic Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Award: 10.00 points http://ezto.mheducation.com/hm.tpx Page 2 of 20 Assignment Print View 3/29/16 9:03 PM The conversion premium is equal to the market price (or value) minus the conversion value. True False References True / False 6. Difficulty: Basic Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Award: 10.00 points Conversion premiums are influenced heavily by expectations of future stock performance. True False References True / False 7. Difficulty: Intermediate Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Award: 10.00 points A convertible bond has both a downside limit (the pure bond value) and an upside limit (the conversion price). True http://ezto.mheducation.com/hm.tpx Page 3 of 20 Assignment Print View 3/29/16 9:03 PM False References True / False 8. Difficulty: Intermediate Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Award: 10.00 points If market rates of interest change, the "floor value" of a convertible bond can change. True False References True / False Difficulty: Basic 9. Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Learning Objective: 19-03 Convertible bonds have a pure bond value based on interest paid. Award: 10.00 points http://ezto.mheducation.com/hm.tpx Page 4 of 20 Assignment Print View 3/29/16 9:03 PM Generally speaking, convertible bonds reverse the risk-return trade-off that applies to most investments. True False References True / False Difficulty: Intermediate 10. Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Learning Objective: 19-03 Convertible bonds have a pure bond value based on interest paid. Award: 10.00 points The primary issuers of convertible bonds are smaller than top-grade companies. True False References True / False http://ezto.mheducation.com/hm.tpx Difficulty: Intermediate Learning Objective: 19-01 Convertible securities can be converted to common stock at the option of the owner. Page 5 of 20 Assignment Print View 11. 3/29/16 9:03 PM Award: 10.00 points When the market price of a common stock rises above the conversion price, the convertible should always be converted immediately before it drops. True False References True / False 12. Difficulty: Intermediate Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Award: 10.00 points The conversion ratio is the price at which a convertible security is exchanged into common stock. ratio of conversion value to market value of a convertible security. number of shares of common stock into which the convertible may be converted. ratio of the conversion premium to market value of a convertible security. References Multiple Choice 13. Difficulty: Intermediate Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Award: 10.00 points http://ezto.mheducation.com/hm.tpx Page 6 of 20 Assignment Print View 3/29/16 9:03 PM Which of the following is true? As the price of common stock increases, the market price of a convertible bond and the conversion premium increase. As the price of common stock increases, the market price of a convertible bond and the conversion value increase. As the price of common stock increases, the conversion value and the floor price increase. Two of the options. References Multiple Choice 14. Difficulty: Challenge Learning Objective: 19-02 Because these securities can be converted to common stock, they may move with the value of common stock. Award: 10.00 points The theoretical floor value for a convertible bond is its conversion price. conversion value. par value. pure bond value. References Multiple Choice http://ezto.mheducation.com/hm.tpx Difficulty: Basic Learning Objective: 19-03 Convertible bonds have a pure bond value based on interest paid. Page 7 of 20 Assignment Print View 15. 3/29/16 9:03 PM Award: 10.00 points The computation of "basic earnings per share" will include consideration of all convertible securities. only shares outstanding. shares outstanding and convertible securities. None of these options References Multiple Choice 16. Difficulty: Basic Learning Objective: 19-05 Accountants require that the potential effect of convertibles and warrants on earnings per share be reported on the income statement. Award: 10.00 points Warrants are long-term options to sell shares of the issuing firm's stock. fairly stable, low-risk investments. investments whose value is directly related to the price of the underlying stock. structured to sell for precisely their intrinsic value. References Multiple Choice http://ezto.mheducation.com/hm.tpx Difficulty: Basic Learning Objective: 19-04 Warrants are similar to convertibles in that they give the warrant holder the right to acquire common stock. Page 8 of 20 Assignment Print View 17. 3/29/16 9:03 PM Award: 10.00 points A warrant that does not expire until several years into the future provides its owner the opportunity to buy a stock. If the stock price rises, the warrant will probably sell for less than its intrinsic value. exactly its intrinsic value. more than its intrinsic value. less than or equal to its intrinsic value. References Multiple Choice 18. Difficulty: Intermediate Learning Objective: 19-04 Warrants are similar to convertibles in that they give the warrant holder the right to acquire common stock. Award: 10.00 points A contract giving the owner the right to buy or sell an asset at a fixed price for a given period of time is a common stock. an option. a futures contract. a capital investment. References Multiple Choice http://ezto.mheducation.com/hm.tpx Difficulty: Basic Learning Objective: 19-06 Derivative securities such as options and futures can be used by corporate financial managers for hedging activities. Page 9 of 20 Assignment Print View 19. 3/29/16 9:03 PM Award: 10.00 points Options contracts contrast with futures contracts because options are not traded on organized exchanges. options do not create an obligation for the owner of the instrument. options are derivatives. None of these options References Multiple Choice 20. Difficulty: Basic Learning Objective: 19-06 Derivative securities such as options and futures can be used by corporate financial managers for hedging activities. Award: 10.00 points All of the following are motivation for firms to issue warrants except for which one? May allow the firm to issue debt at a lower rate when warrants are included Used as a sweetener during merger negotiations Is more desirable than convertible securities for creating new common stock All of these options are motivations. References Multiple Choice http://ezto.mheducation.com/hm.tpx Difficulty: Challenge Learning Objective: 19-04 Warrants are similar to convertibles in that they give the warrant holder the right to acquire common stock. Page 10 of 20 Assignment Print View 21. 3/29/16 9:03 PM Award: 10.00 points In a merger, two or more companies are combined to form an entirely new entity. True False References True / False 22. Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Award: 10.00 points A tax loss carryforward is a benefit to the acquired firm's shareholders. True False References True / False 23. Difficulty: Basic Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Award: 10.00 points http://ezto.mheducation.com/hm.tpx Page 11 of 20 Assignment Print View 3/29/16 9:03 PM One potential advantage of a merger to the acquiring firm is the "portfolio effect," which attempts to achieve risk reduction while perhaps maintaining the rate of return for the firm. True False References True / False 24. Difficulty: Basic Learning Objective: 20-04 The diversification benefits of a merger should be evaluated. Award: 10.00 points Mergers often improve the financing flexibility that a larger company has available. True False References True / False 25. Difficulty: Basic Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Award: 10.00 points The stock market's reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business, or if it seems to sharpen the company's focus. True http://ezto.mheducation.com/hm.tpx Page 12 of 20 Assignment Print View 3/29/16 9:03 PM False References True / False 26. Difficulty: Basic Learning Objective: 20-04 The diversification benefits of a merger should be evaluated. Award: 10.00 points Synergy is said to take place when the whole is less than the sum of the parts. True False References True / False 27. Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Award: 10.00 points In a horizontal merger, the integration that occurs comes from acquiring companies that supply resources to the company's production process. True False References http://ezto.mheducation.com/hm.tpx Page 13 of 20 Assignment Print View 3/29/16 9:03 PM True / False 28. Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Award: 10.00 points Vertical integration is usually prohibited or severely restricted by government antitrust regulations. True False References True / False 29. Difficulty: Basic Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Award: 10.00 points After a merger has been announced, subsequent cancellation generally causes the potential acquiree's stock to decline in value. True False References True / False http://ezto.mheducation.com/hm.tpx Difficulty: Basic Learning Objective: 20-05 Some buyouts are unfriendly and are strongly opposed by the potential candidates. Page 14 of 20 Assignment Print View 30. 3/29/16 9:03 PM Award: 10.00 points Multinational mergers provide economic and political diversification, which can lead to a higher cost of capital for the new firm. True False References True / False 31. Difficulty: Intermediate Learning Objective: 20-04 The diversification benefits of a merger should be evaluated. Award: 10.00 points A business combination of two or more companies in which the resulting firm maintains the identity of the acquiring company is defined as a consolidation. holding company. conglomerate. merger. References Multiple Choice http://ezto.mheducation.com/hm.tpx Difficulty: Basic Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Page 15 of 20 Assignment Print View 32. 3/29/16 9:03 PM Award: 10.00 points When a tobacco firm merges with a steel company, it would be called a horizontal merger. a vertical merger. a conglomerate merger. a consolidation. References Multiple Choice 33. Difficulty: Intermediate Learning Objective: 20-04 The diversification benefits of a merger should be evaluated. Award: 10.00 points The rising ratio of divestitures to new acquisitions that occurred in the past suggests that poison pills are no longer effective as a defense against takeovers. too much diversification strained the operating capabilities of many firms. the portfolio effect has been a highly successful method of reducing risk. multinational firms are increasingly considered high risky investments. References Multiple Choice 34. Difficulty: Basic Learning Objective: 20-04 The diversification benefits of a merger should be evaluated. Award: 10.00 points http://ezto.mheducation.com/hm.tpx Page 16 of 20 Assignment Print View 3/29/16 9:03 PM In planning mergers, there is a tendency to _____ synergistic benefits. overestimate underestimate correctly estimate not estimate References Multiple Choice 35. Difficulty: Basic Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Award: 10.00 points Which of the following type of merger decreases competition? A horizontal merger A vertical merger A cash purchase A stock-for-stock exchange References Multiple Choice http://ezto.mheducation.com/hm.tpx Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Page 17 of 20 Assignment Print View 36. 3/29/16 9:03 PM Award: 10.00 points The elimination of overlapping functions and the meshing of two firms' strong areas or products creates the managerial incentive for mergers known as horizontal integration. vertical integration. synergy. the portfolio effect. References Multiple Choice 37. Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Award: 10.00 points Nonfinancial motives for mergers include synergy. the portfolio effect. vertical integration. synergy and vertical integration. References http://ezto.mheducation.com/hm.tpx Page 18 of 20 Assignment Print View 3/29/16 9:03 PM Multiple Choice 38. Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Award: 10.00 points Dilution in earnings per share occurs when a company with a high P/E ratio buys a company with a low P/E ratio. a low P/E ratio buys a company with a high P/E ratio. a high growth rate in earnings per share buys a company with a low growth rate in earnings per share. a low growth rate in earnings per share buys a company with a high growth rate in earnings per share. References Multiple Choice 39. Difficulty: Intermediate Learning Objective: 20-03 The potential impact of the merger on earnings per share and stock value must be carefully assessed. Award: 10.00 points Under a two-step buyout procedure shareholders receive a higher total price than if a single offer is made. the second offer is at a higher price per share. shareholders are encouraged to react quickly to the offer. Two of the options are correct. http://ezto.mheducation.com/hm.tpx Page 19 of 20 Assignment Print View 3/29/16 9:03 PM References Multiple Choice 40. Difficulty: Intermediate Learning Objective: 20-05 Some buyouts are unfriendly and are strongly opposed by the potential candidates. Award: 10.00 points Which of the following is NOT a potential challenge or downside to a merger? Anti-trust laws Dilution Firm valuation Synergy References Multiple Choice http://ezto.mheducation.com/hm.tpx Difficulty: Intermediate Learning Objective: 20-01 Firms engage in mergers for financial motives and to increase operating efficiency. Tax benefits and other factors must also be considered. Page 20 of 20