class 3 powerpoint

Question 1

effect of acquisitions on the demand of management?

Answer 1

While acquisitions bring potential synergistic gains, they also entail accrued demand on management

Question 2

disadvantage of A cross-border acquisition

Answer 2

physical distances could put additional strain to management

Question 3

who tends to benefit from higher stock returns following the announcement of the acquisition of Canadian targets between Canadian acquirers and US firms?

Answer 3

Canadian acquirers

Question 4

effect of currency rates on M&A deals

Answer 4

If the home currency of a bidder is relatively stronger that the local currency of the target, she could afford a higher premium and the target could be less prone to pass it up

Question 5

Countries whose currencies appreciate are more or less prone to have acquirers?

Answer 5

more

Question 6

countries whose currencies depreciate tend to have targets or acquirers?

Answer 6

targets

Question 7

Sources of revenue-enhancing synergies

Answer 7

Pricing power

Combination of functional strengths

Growth from faster-growth markets or new markets

Question 8

Pricing power

Answer 8

a combination of two firms which leads to a more oligopolistic market structure could lead to positive synergies

Question 9

Combination of functional strengths

Answer 9

a combination of two firms, each of which is strong in a distinct functional area

Question 10

Growth from faster-growth markets or new markets

Answer 10

firms may enter a fast-growing market

Question 11

Economies of scale

Answer 11

decreases in per-unit costs that stem from an increase in size or scale of a firm’s operations

Question 12

Spreading overhead

Answer 12

takes place when the per-unit costs decline as the output levels rise

Question 13

Economies of scope

Answer 13

stand for the ability of to utilize one set of inputs so as to provide a broader array of products and services

Question 14

Countervailing power

Answer 14

the gain of bargaining power following a horizontal merger vis-à-vis concentrated supplier industries

Question 15

The debt-coinsurance effect

Answer 15

occurs when the earnings of the well-performing firm offset the losses of the combined firm so as to avoid bankruptcy

benefits accrue to bondholders at the expense of shareholders

Larger banks may be too-big-to-fail, and hence they could be entitled to bailouts

Question 16

Following acquisitions, financial economies of scale could occur in the form what?

Answer 16

lower flotation and transaction costs

Question 17

An internal capital market

Answer 17

takes place when larger firms provide targets access to external financing

Question 18

which companies have better credit quality and better access to capital markets? diversified or undiversified?

Answer 18

Diversified companies

Question 19

In the US, financial reporting combines the assets of acquirer with those of the target

how does it differ from European firms

Answer 19

Europan firms are required to disclose financial data on an unconsolidated basis

Question 20

Types of Focus Hypothesis

Answer 20

Increased corporate focus is in tandem with the shareholder wealth maximization

Question 21

One important benefit of diversification is that diversified firms regarding hostile takeovers

Answer 21

diversified firms are less prone to be targets of hostile takeovers

Question 22

Spin-offs that increase industrial focus compared to those that increase geographical focus

Answer 22

Spin-offs that increase industrial focus engender positive shareholder wealth effects

those that increase geographical focus have no effect

Question 23

NAV (Net Asset Value) formula

Answer 23

NAV = (VAB - (VA + VB)) - (P + E)

NAV: Net acquisition value

VA: the Value of A (acquirer)

VB: The value of B (target)

P: Premium paid for B

E: Expenses of the acquisition process