Question

Coca Cola to purchase bottler in 12.3 billion Deal

The aquisition of Coca Cola Enterprises is an example of a

a. Capital Structure

B. Capital Budgeting

C. Poor

D. Good

Cola Cola Company agreed to aqusition terms with North American Bottler Coca Cola Enterprises. Coca Cola Co sells beverages concentrate and syrup to the licensed bottlers who use it to create the finished product. The aquisition is expected to save the company millions in through elimination of duplicated efforts and increased opportunities for revenues. PepsiCo made a similar move in August 2009 when the company brought its two largest bottlers back in house. Shareholders of Coca Cola Enterprises responded positively to Cocoa Cola’s aquisition by driving the price up 27 percent. The agreement goives the bottlers shaeholders $10 a share and one share in the new bottling company. Coca Cola Company shares were up only a few cents on the news.

Thinking Critically questions

1. An aqusitions or merger that involves two components of a product chain is called

A. conglomerate merger

B. horizontal merger

C. neutral aquisition

D. vertical merger

2. The theory that maintains thet the current price of an asset reflects all available information about that asset is known as the

A. efficient markets hypothesis

B. asset valuation theory

C. static price theory

D. none of the above

3. The aquisition of Coca-Cola Enterprises is an example of a _____________ decision.

A. capital structure

B. capital budgeting

C. poor

D. good

Answer 1

Answer 1

In the given situation the two firms are separate but in terms of work function it is observed that these firms exist in the same supply chain i.e. function of Coca Cola Co is to manufacture beverages and syrup but it hires third party for bottling and convert it into finished item. On the other hand Coca Cola enterprise works in the market as a licenced bottler. When the two companies jointly work it postulates that they are not competitor with each other and they jointly work under the same supply line in order to cater the product in market more effectively. This type of acquisition come under vertical merger.

Therefore, the answer is 1D

Answer 2

There are three efficient forms found in a capital market

a. weak form b. semi-strong form c. strong form

Under efficient market hypothesis strong form is regarded as the extreme case in terms of market efficiency. This form confers that the current security price carries all information relating to publicly available information and inside information that is termed as private information. Other than these information there exist no other information which may become superior than these information in order to reflect the current status of the market price of the share. Therefore, considering the above the answer is Efficient market analysis

Therefore the answer is 2A

Answer 3

If we observe the incident laid down in the question we have found that the shareholders of the Coca Cola enterprise takes such acquisition in a positive manner and it is also seen that each shareholder has earned a single share of the new bottling company together with the existing shares the price of which is $10 per share.

So the answer is 3D i.e. good.