Question

Complete each sentence, formula or phrase with the answer that best completes
the sentence:

6	In a __________________________ acquisition, both the acquirer and the acquired are in
	the same industry
7	A(n) _________________________is the same as a merger except that an entirely new
	firm is created.
8	Tax gains are sometimes sited as a reason for a merger. On such tax gain reason is to
	purchase a company with an NOL. NOL stands for __________________________
9	_______________________ and ___________________ came up with Propositions I and II relative to
	valuation of levered and unlevered companies both ignoring taxes and with corporate taxes
10	The most basic type of ______________________ is the sale of a division, business unit, segment, or
	set of assets to another company. Other types are Carve-Out, and Spin-Off.

Answer 1

Answer 6)

In a horizontal acquisition, both the acquirer and the acquired are in same industry.

A horizontal merger/acquisition is a one in which one company acquires another company which offers a similar product lines and services (in same industry). The benefit from this is that it eliminates competition and hence helps the acquirer to raise market share and revenues.

Answer 7)

A consolidation is same as merger except that an entirely new firm is created

In a merger, 2 companies merge and the company taking over is the only entity left. While in consolidation, 2 companies merge and a new firm is formed.

A + B = A ---> Merger

A + B = C ---> Consolidation

Answer 8)

NOL stands for Net Operating Loss.

NOL exists for a company if the deductions are more than the taxable income. This helps the company by reducing the taxable income in future taxable years. Hence, a company taking over a company with NOL, with have tax benefits by showing NOL and reducing taxable income.

Answer 9)

Franco Modigliani and Merton Miller (MM) came up with propositions I and II valuations.

MM theory is related to the returns generated for investors on the basis of a firm's capital structure. There are a few assumptions:

- No transaction costs

- No taxes

- Symmetry of information

- Equivalence in borrowing costs for investors and companies