Question

16. Kojack Film needs silver to make photographic film. To ensure that they will have an ample supply of silver at a reasonable price, the company purchases a silver mine. This is an example of a(n) _____________.
A. horizontal acquisition
B. hostile takeover
C. acquisition of liquid assets
D. conglomerate acquisition
E. vertical acquisition

17. FirstGuppy Corp. has just received a purchase offer from FirstShark, an unfriendly suitor. Instead of accepting the offer, FirstGuppy attempts to merge with FirstMolly, a friendly alternative suitor. FirstMolly is a ______ in this instance.
A. golden parachute
B. shark repellent
C. white knight
D. crown jewel
E. lockup

18. Which of the following represent potential gains from an acquisition?
I. The replacement of ineffective managers
II. Lower costs per unit produced
III. An increase in firm size so that diseconomies of scale are realized
IV. Spreading of overhead costs
A. II and III only
B. I and IV only
C. I, II, and IV only
D. I, III, and IV only
E. I, II, III, and IV

19. One legitimate advantage to leasing is that:
A. Leasing provides 100% financing.
B. Leasing provides a source of off-balance sheet financing.
C. By leasing, the lessee's income statement will be stronger.
D. Taxes may be reduced by leasing.
E. Unlike borrowing and purchase, leasing decreases a firm's financial leverage.

20. Which of the following describe(s) a financial lease?

I. The lease is cancellable at the option of the lessee.
II. The term of the lease is usually long-term.
III. The lessee is typically required to maintain the asset.
A. I only
B. I and II only
C. I and III only
D. II and III only
E. I, II, and III

Answer 1

Ans:

Q. 16) E) Vertical acquisitions

Reason: Vertical acquisitions is combine of two companies that are same value of chain producing the same goods & services, difference is stage of production at which they are operating.

Horizontal acquisition is combine of two same companies and vertical acquisitions is combine of two different company. Hostile takeover means take over the company whose management is unwilling to agree to acquisition. Acquisition of liquid assets means to acquire assets which are easily convertible into cash.

Q. 17) C) White knight

Reason: White knight means if target company can not prevent hostile takeover (ie purchase offer unfriendly company) then offers to buy controlling interest in friendly company.

Golden parachute is a provision where large bonus is given to target company if company is acquired.

Shark repellent means making target company less attractive for acquiring company.

Crown jewel means selling the most valuable part of target company by itself.

Lock up offer means offer of assets by target to friendly company to frustrate hostile acquirer but freezes the assets so that this cannot be resold without permission of target company.

Q. 18) C) I, II & IV only

Reason : Acquisitions gains replacement of inefficient managers , lower cost per unit produce due to economies of scale (producing larger units) & spreading of overhead costs over large number of units.

Diseconomies of scale means increase in production costs which is not true when acquisition takes place.

Q. 19) A) Leasing provides 100% financing.

Reason: Only operating lease provides off balance sheet financing and not finance lease.

Leasing doe not decide stronger or weaker position of income statement.

Taxes benefits are provided by leasing but not all leasing.

Operating leases understate leverage and finance leases increases leverage.

Q. 20) E) I, II & III

All options are related to finance lease.