Question 1

1. The following are common reasons cited for selling offprior acquisitions:

Poor fit.

Poor performance.

Cash flow needs.

All of the above.

3 points

Question 2

1. In the United States, in order for a spinoff to be non-taxable,the following must be the case:

Both the parent company and the spun-off entity must be in business for at least ?ve years before the restructuring.

The subsidiary must be at least 80% owned by the parent company.

The parent company and the spunoff entity must be in the same industry.

Both a and b.

3 points

Question 3

1. An equity carve out is different than a spinoff because....

....the shareholder base does not change.

.....it brings in new capital.

...it is much cheaper to implement.

None of the above.

3 points

Question 4

1. In general, a selloff....

...decreases the wealth of the parent company.

...increases the wealth of the parent company.

...has no related impact on shareholder wealth.

...increases the price of the stock some time after the selloff date.

3 points

Question 5

1. Research shows that bypass offers tend to have:

Higher takeover premiums

Lower takeover premiums

No impact on takeover premiums

None of these

3 points

Question 6

1. In the United States the rules governing corporate reorganizations are detailed in the following part of the bankruptcy law::

Chapter 13

Chapter 11

Chapter9

None of the above

3 points

Question 7

1. Creditors seeking payments from a company in reorganization bankruptcy in the United States must file:

Schedule TO.

Chapter 11 form.

Proof of Claim.

None of the above.

3 points

Question 8

1. A letter of intent:

Is legally required in all U.S. deals.

Is more detailed terms than a term sheet.

Is more common in closely held acquisitions.

None of the above.

3 points

Question 9

1. The following are drivers of economic failure:

Revenues lower than costs

Return on investment below costs of capital.

Profitability below expected levels.

All of the above.

3 points

Question 10

1. The advantages of negotiating a workout between debtors and creditors outside of the formal bankrutpcy procedures include all of the following except:

It is easy to get all creditors to agree.

There is no stigma associated with bankrutpcy.

There is less of a business loss.

Expenses that would normally be incurred in bankruptcy are reduced.

3 points

Question 11

1. Foreign companies which have what percent of the trading volume on U.S. exchanges have to comply with SOX:

More than 5%

More than 10%

Less than 50%

More than 50%

3 points

Question 12

1. Motives for Joint Ventures include:

Enhanced research and development capabilities.

Better sourcing for supplies.

Both a and b.

Neither a nor b.

3 points

Question 13

1. Which is not a concern when creating a joint venture:

They may fail because the Joint Venture partners do not work well together.

Venture partners may reluctant to share intellectual property or other proprietaryknowlege.

A joint venture must be dissolved after5 years.

All of the above.

3 points

Question 14

1. In mergers of equals:

Directors of Bidder companies generally are better compensated than Directors of Target companies.

Directors ofTarget companies generally are better compensated than Directors ofBidder companies.

Directors of Bidder and Target companies generally areequally compensated.

There is no evidence thatthe Directors of eitherthe Bidders or Target companies are unevenly compensated.

3 points

Question 15

1. For a company with positive debt:

Enterprise value is less then equity value.

Enterprise value equals equity value.

Enterprise value is more than equity value.

None of the above.

3 points

Question 16

1. The following factors will influence the initial potential dilution of earnings per share:

Differential in P/E ratios.

Relative size of the two firms as measured by earnings.

Taxability of target earnings.

Both a and b.

3 points

Question 17

1. The following are desirable characteristics of targets:

Rapidly growing cash flows and earnings.

Low P/E ratios.

Market value less than book value

All of the above.

3 points

Question 18

1. The discount rate used to discount future cash flows should:

Be equal to yield on long-term U.S. Treasuries.

Be 2% greater than yield on long-term U.S. Treasuries.

Incorporate a risk premium equal to perceived risks and volatility of future cash flow stream.

Usually will be 1% greater than yield on high yield bonds.

3 points

Question 19

1. Use the following information about ACME Co., to answer questions 19 and 20.

(Numbers in millions)

Assuming the Sales Growth rate for ACME Co., in year 6 is 6% and the NOPAT Margin, and CAPX as a % of Sales percentages are the same as in year 5.

The Free Cash Flow in Year 6 is:

$45.5 million

$47.8 million

$48.2 million

$42.9 million

3 points

Question 20

1. The Total Enterprise Value for Acme Co.,is:

$804.1 million.

$456.3 million.

$595.4 million.

$495.4 million