Corporate Finance

Merge with a supplier or a customer is what type of merger?

• Horizontal merger

• Vertical merger

• Conglomerate merger

Does the motive of a merger to increase earnings per share make economic sense?

• Yes

• No

Which of the following will cause the increase in earnings per share after a merger?

• Acquiring firm has high P/E ratio

• Acquiring firm has low P/E ratio

Does industry consolidation consider a motive for a merger that makes economic sense?

• Yes

• No

The following are dubious reasons for mergers:

• to diversify

• to increase the earnings per share (EPS)

• lower financing costs

• to carry out industry consolidation

In the long run, a successful acquisition is one that:

• enables the acquirer to make an all-equity purchase, thereby avoiding additional financial leverage

• enables the acquirer to diversify its asset base

• increases the market price of the acquirer's stock over what it would have been without the acquisition

• increases financial leverage

If Firm A acquires Firm B for cash, then the cost of the merger is equal to the cash payment minus B's value as a separate entity.

• True

• False

Gain from mergers is defined as: Gain = PVAB – (PVA + PVB)

• True

• False

Firm V was worth $450 and Firm A had a market value of $375. Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925. What is the NPV from the merger of Firm V and Firm A?

• $0

• $50

• $425

• $450

Holiday & Sons is being acquired by Miller’s, Inc. for $20,000 worth of Miller’s stock. Miller has 1,300 shares of stock outstanding at a price of $20 a share. Holiday has 1,000 shares outstanding with a market value of $18 a share. The incremental value of the acquisition is $2,000. What is the total number of shares in the new firm?

• 1,000 shares

• 2,300 shares

• 1,500 shares

• 2,000 shares