PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 31, Problem 4PS
Summary Introduction
To discuss: The merger which makes economic scene.
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The following are sensible motives for mergers EXCEPT:
a.
Economies of scope
b.
Reducing firm risk through diversification
c.
Reducing competition
d.
Eliminating inefficiencies
e.
All of the above
The cost of a merger may outweigh the potential gain if the:
present value of the acquired firm exceeds the price paid for it.
acquired firm's shareholders receive more than the value of their firm.
present value of the merged firms is greater than the sum of their individual values.
merger allows cost savings to occur.
Which of the following LEAST accurately describes the advantages of specific types of mergers and acquisitions?a. The catch-all term for the benefits from M&As is synergy.b. A diversified group of business may further acquire other businesses in a conglomerate type of acquisition.c. The acquisition of an entity outside the industry and supporting services will result to decrease in cost of production of the acquirer.d. Financial advantages of M&A include decreased operating costs, increased financial capacity, and combined sales.
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Similar questions
- Define synergy. Is synergy a valid rationale for mergers? Describe several situationsthat might produce synergistic gains.arrow_forwardIf stock market returns for merged firms are positive, which motives for horizontal merger would be supported? If stock market returns were negative, which motives would be supported? PORarrow_forwardWhich of the following statements is most CORRECT? Oa. Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification, including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what's probably a lower cost, diversification benefits is generally not a valid motive for a publicly held firm. Ob. The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations, and the higher the probability that the merger will be completed. Oc. Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely relevant considerations when considering a merger. Od. Operating economies are never a motive for mergers. Oe. Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes the purchasing firm to additional taxes. Thus, firms with excess…arrow_forward
- Which of the following statements is most CORRECT? Oa. The primary rationale for most operating mergers is synergy. Ob. In most mergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then divided equally between the shareholders of the acquiring and target firms. Oc. Financial theory says that the choice of how to pay for a merger is really irrelevant because, although it may affect the firm's capital structure, it will not affect its overall required rate of return. Od. The basic rationale for any financial merger is synergy and, thus, the estimation of pro forma cash flows is the single most important part of the analysis. Oe. The acquiring firm's required rate of return in most horizontal mergers will not be affected, because the 2 firms will have similar betas.arrow_forward“Reasons for merger that will result in wealth maximization are strategic benefits, market power, economics of scale, economies of vertical integration and taxation benefits”. Describe how any four out of the five factors mentioned may contribute to the success of a merger business exercisearrow_forwardDiscuss the underlying theories and empirical evidence on the value creation from horizontal mergers. How do other firm- and deal- characteristics interact with the valuation effects of such mergers?arrow_forward
- Why might one company have to complete more due diligence than another in a merger? A. None of these answers B. It is important for a company to know what it is buying C. Acquisitions can be risky D. If there is a large size discrepancy the merger seems more like an aquisarrow_forward“Merger may be profitable but are they good for the economy?” Explain your answer towards this statement.arrow_forwardWhy so many mergers fail to produce the expected synergistic gains?arrow_forward
- Which is not a valid, acceptable reason for companies to merge? Synergistic benefits arising from mergers. Reduction in competition resulting from mergers. Acquisition of assets at below replacement value. Attempts to minimize taxes by acquiring a firm with large accumulated losses that can be used immediately. Using surplus cash to acquire another firm and prevent unfavorable tax consequences for shareholders.arrow_forwardSeveral reasons have been proposed to justify mergers. Among the more prominent are (1) tax consideration, (2) risk reduction, (3) control, (4) purchase of assets at below replacement cost, and (5) synergy in general. Which of the reasons are economically justifiable? Which are not? Which fit the situation at hand? Explain.arrow_forwardWhy might two companies choose to form a strategicalliance rather than pursue a merger or an acquisition?arrow_forward
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