Merger Acquisition online mcq with answer practice set

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Exam Question

Why should a company go for transfer pricing?

1. To maximize the company’s total profitability
2. To increase internal specialization
3. To complement the capacity utilization of the supplier division
4. All of the above

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Answer 4. All of the above

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Exam Question

Costs are accumulated for each activity as a separate cost object in

1. ABC analysis
2. Target Costing
3. Traditional Costing
4. None of the above

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Answer 1. ABC analysis

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Exam Question

In the dividend discount model,…which of the following are not incorporated into the discount rate?

1. real risk-free rate
2. risk premium for stocks
3. return on assets
4. expected inflation rate

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Answer 3. return on assets

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Exam Question

The most appropriate discount rate to use when applying a FCFF valuation model is the…

1. required rate of return on equity
2. WACC
3. risk-free rate
4. A or C depending on the debt level of the firm

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Answer 2. WACC

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Exam Question

Net profit is equal to:

1. Sales less cost of sales and operating expenses
2. Gross profit less operating expenses
3. Sales less operating expenses
4. Both (a) & (b)

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Answer 2. Gross profit less operating expenses

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Exam Question

The public sale of common stock in a subsidiary in which the parent usually retains majority control is called

1. a pure play
2. a spin-off
3. a partial sell-off
4. an equity carve-out

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Answer 4. an equity carve-out

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Exam Question

When sequential long-term financing is involved, the choice of debt or equity influences the future financial…of the firm.

1. timing
2. flexibility
3. liquidity
4. None of the above

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Answer 2. flexibility

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Exam Question

A critical assumption of the net operating income (NOI) approach to valuation is:

1. that debt and equity levels remain unchanged
2. that dividends increase at a constant rate
3. that ko remains constant regardless of changes in leverage
4. that interest expense and taxes are included in the calculation

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Answer 3. that ko remains constant regardless of changes in leverage

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Exam Question

The following are examples of changes in corporate control except:

1. Merger & Acquisition
2. Leverage Buy Out (LBOs)
3. Proxy fights
4. Spin-Off & carve-outs

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Answer 3. Proxy fights

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Exam Question

In case of carve-outs:

1. Shares of the new company are given to the shareholders of the parent company
2. Shares of the new company are sold in a public offering
3. Shares of the new company are bought by borrowing or issuing junk bonds
4. None of the above

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Answer 2. Shares of the new company are sold in a public offering

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Exam Question

“Shareholder wealth” in a firm is represented by:

1. The number of people employed in the firm
2. The book value of the firm’s assets less the book value of its liabilities
3. The amount of salary paid to its employees
4. Number of shares held X market price of shares

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Answer 4. Number of shares held X market price of shares

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Exam Question

High P/E ratios tend to indicate that a company will…, ceteris paribus.

1. grow quickly
2. grow at the same speed as the average company
3. grow slowly
4. not grow
5. none of the above

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Answer 3. grow slowly

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Exam Question

The cost of capital for a firm — when we allow for taxes, bankruptcy, and agency costs —

1. remains constant with increasing levels of financial leverage
2. first declines and then ultimately rises with increasing levels of financial leverage
3. increases with increasing levels of financial leverage
4. decreases with increasing levels of financial leverage

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Answer 2. first declines and then ultimately rises with increasing levels of financial leverage

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Exam Question

Entrepreneurs typically form

1. Service businesses
2. Manufacturing companies
3. Constructive companies
4. A variety of ventures

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Answer 4. A variety of ventures

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Exam Question

The…is a common term for the market consensus value of the required return on a stock.

1. dividend payout ratio
2. intrinsic value
3. market capitalization rate
4. plowback rate
5. none of the above

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Answer 3. market capitalization rate

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Exam Question

Which of the following is NOT recognized as a misconception about entrepreneurship?

1. Entrepreneurship is found only is small businesses
2. Entrepreneurship is easy
3. Successful entrepreneurship needs only a great idea
4. Entrepreneurial ventures and small businesses are different

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Answer 4. Entrepreneurial ventures and small businesses are different

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Exam Question

Franchising is:

1. Purchase all part of company
2. Allowing another party to use a product or services under the owner’s name
3. Joining two or more companies
4. A company acquiring another company against its will

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Answer 2. Allowing another party to use a product or services under the owner’s name

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Exam Question

Bidding companies often pay too much for the acquired firm. The hubris hypothesis explains this by suggesting that the bidders

1. Have too little information to make an optimal decision
2. Have big egos and this impedes rational decision-making
3. Have difficulty in thinking strategically over the long-term
4. Are overly influenced by the tax consequences of an acquisition

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Answer 2. Have big egos and this impedes rational decision-making

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Exam Question

Due diligence will attempt to restate financial statements in relation to what will take place after the two companies merge. One area of particular concern as it relates to the Balance Sheet is:

1. Proper Valuation of Cash
2. Par Value Assigned to Stock
3. Selection of Depreciation Methods
4. Possible Understatement of Liabilities

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Answer 4. Possible Understatement of Liabilities

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Exam Question

An analyst has determined that the intrinsic value of Dell stock is $34 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 27, then it would be reasonable to assume the expected EPS of Dell in the coming year is…

1. $3.63
2. $4.44
3. $14.40
4. $1.26

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Answer 4. $1.26

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