The purchase premium is usually defined in the popular press as the excess of the offer price over the target firm's share price immediately prior to the deal announcement date. A more accurate estimate of the purchase premium includes the sum of the increase in the target firm's share price prior to the announcement (i.e., the run-up)plus the excess of the offer price over the run-up (i.e,the markup).

Match the following factors that affect the purchase price premiums:

- A. B. C. D. E. F. G. H.	Net synergy potential
- A. B. C. D. E. F. G. H.	Hubris
- A. B. C. D. E. F. G. H.	Board Connections
- A. B. C. D. E. F. G. H.	Desire to control
- A. B. C. D. E. F. G. H.	Value of potential target tax attributes (e.g.NOLs)
- A. B. C. D. E. F. G. H.	Industry growth prospects

A.	Buyers may pay more to gain control of firms exhibiting weak financial performance because of potential gains from making better business decisions
B.	Acquirers are willing to pay more for target tax attributes if they believe the potential tax savings can be realized relatively quickly
C.	Excessive confidence may lead bidders to overpay
D.	Hostile transactions (or the credible threat of hostile transactions) tend to command higher premiums than friendly transactions
E.	Purchase premiums are likely to increase the greater the magnitude of perceived net synergy.Net synergy often is the greatest in highly related firms
F.	Acquirer realize higher announcement date returns in transactions in which the target and the acquirer's boards share a common director
G.	Targets displaying greater growth potential relative to competitors generally command higher premiums
H.	The magnitude of premiums variessubstantially across industries, reflecting differences in expected growth rates

What are the possible options for a failing firm with a liquidation valuegreater than the sale or going-concern value?(check all correct answers)

	A.	Seeks bankruptcy protection under Chapter 11
	B.	Liquidates under Chapter 7
	C.	Reaches out-of-court settlement with creditors
	D.	Merges with another firm

The purchasing power parity theory states that the percentage difference in the forward rate relative to the spot rate should over time equal the differences in expected inflation rates between countries.

True

False

What bankruptcy law makesit more difficult for some consumers to file bankruptcy under Chapter 7?

	A.	DOJ
	B.	BAPCPA
	C.	International Trade Law
	D.	US Bankruptcy Code

Bankruptcy is a state-level legal proceeding designed to protect the technically or legally insolvent firm from lawsuits by its creditors until a decision can be made to shut down or to continue to operate the firm.

True

False