QUESTION 11

1. Firms that are flush with cash but have few new profitable investment opportunities are prone to using their surplus cash to make acquisitions.
2. True
3. False

4 points

QUESTION 12

1. The best way to assess whether an acquiring company is overpaying for a target company is to compare the premium being offered to those offered in similar transactions.
2. True
3. False

4 points

QUESTION 13

1. The most popular methods of valuation used for mergers and acquisitions are earnings multiples and discounted cash flows.
2. True
3. False

4 points

QUESTION 14

1. Computing the value of an acquisition target as anindependentfirm provides a way of checking whether the valuation assumptions are reasonable.
2. True
3. False

QUESTION 15

1. Demands by the shareholders of an acquisition target to be paid in cash could leave the acquiring company with a postacquisition captial structure that could potentially reduce their shareholder value by increasing the risk of financial distress.
2. True
3. False

4 points

QUESTION 16

1. In evaluating a purchase offer, a primary consideration for the target shareholders should be the tax implications and transaction costs associated with the offer.
2. True
3. False

4 points

QUESTION 17

1. The United States has a specific inter-agency committee that reviews foreign takeovers of U.S. companies on the basis of fair value.
2. True
3. False

4 points

QUESTION 18

1. Outside investors require access to reliable information on a company's performance merely to measure the incentives paid to management.
2. True
3. False