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Question 1 Two of the primary ways that major ownership and control of a corporation can change is through: Answer liquidation or merger. merger or purchase of stock from a "white knight." acquisition of the target firm or merger of the target firm, in some form, with another firm. merger or consolidation. 4 points Question 2 While U.S. corporations have traditionally concentrated on the shareholder wealth maximization, European corporations more often have concentrated on the: Answer profit model. pyramid structure. stakeholder model captured structure. 4 points Question 3 Corporate directors who are not employees of the corporation but who have existing business relationships with the corporation are: Answer disqualified from acting as directors. called outside directors. disqualified from taking part in any discussion involving their relationship with the corporation. called gray directors. 4 points Question 4 When the fact that a firm has insurance to cover a specific risk reduces the firm's incentive to avoid or minimize that risk, the situation is called a: Answer market imperfection. moral hazard. liquidity risk. cash-and-carry strategy. 4 points Question 5 If the bidder for a firm has to pay more for the stock in that firm than the current market price for that stock, the difference in the current market price and the price that the bidder pays is: Answer the merger bid. a merger premium. the merger ratio. an acquisition premium. 4 points Question 6 What are the benefits of diversification in a conglomerate merger? Answer Increased profit and decreased costs Economies of scale and economies of scope Risk reduction, lower cost of debt, and increased liquidity Lower cost of debt, increased profits, and increased debt capacity 4 points Question 7 The primary method of risk control is: Answer transfer of risk. limiting exposure. hedging. prevention. 4 points Question 8 If the share price after the merger is greater than the share price before the merger, a stockswap merger is a __________ for the acquiring stockholders. Answer toehold negative-NPV transaction positive-NPV transaction poison pill 4 points Question 9 A ____________ provision gives existing shareholders the right to buy more stock at a bargain price in the event the corporation is targeted for a hostile takeover. Answer white knight discounted buy golden parachute poison pill 4 points Question 10 Why was the merger wave in the 1980's known as the "bust-up" wave? Answer Because most of the mergers undertaken in the period were not successful Because poorly performing firms were acquired and then individual business units were sold off, in total, for more than the acquisition price Because many of the mergers completed resulted in the failure of the merged firms Because poorly performing firms were acquired and merged into one large conglomerate 4 points Question 11 What is the free rider problem that can result from a merger? Path: Words:0 Question 12 How does a currency forward contract allow a firm to reduce risks? Answer Path: Words:0