Review of Lecture 2 Test and Quiz Questions 1. BS31 Three common anti-takeover measures often appear during contests for corporate control. Identify the statement that correctly describes the respective measure. a. Poison pills are provisions approved by shareholders of potential takeover targets that, among other things, enable management to issue large numbers of new stocks to existing target shareholders. c- b. Golden parachutes are provisions approved by shareholders of potential takeover targets that provide management with lucrative payments in event they are terminated because of a take-over. c. A white-knight strategy occurs when a potential takeover target gives existing management sufficient new stock so that their ownership position as company leaders is unshakeable. d. Two choices, A and B, are correct e. None of the A-B-C choices are correct 2. FA5 The company share price in the stock market is $20. The equity book value per share according to the balance sheet is $16. There are 540 million shares outstanding. Find the company market capitalization and equity price to book ratio. a. Market cap equals $9,391 million and price-to-book is 1.25 b. Market cap equals $10,800 million and price-to-book is 1.25 c. Market cap equals $8,166 million and price-to-book is 1.09 d. Market cap equals $8,166 million and price-to-book is 1.25 e. Market cap equals $10,800 million and price-to-book is 1.09 \I
3. FA3g The balance sheet for the Raider Company shows Total assets of $12,300 financed by $4,200 of Debt and $8,100 of Stockholders' equity. For the Target Company Total assets of $7AOO are financed by $2,400 of Debt and $5,000 of Stockholders' equity. The Raider Company plans to takeover the Target Company. The Raider Company has 630 common shares outstanding, their equity price-to-book ratio is 5.60, and their price-toearnings ratio is 29.6. The Target Company has 880 common shares outstanding, their equity price-to-book ratio is 1.60, and their price-to-earnings ratio is 16.3. The Raider Company offers 1 share(s) of Raider stock to Target shareholders that tender 6 Target shares (the exchange ratio is 0.166667; assume fractional shares can be exchanged). Suppose tax effects and synergistic gains and losses equal zero; that is, accumulated sales, costs, and profits remain the same. After the Raider takes control of all Target shares, what is the total transfer of wealth from Raider to Target shareholders? b. $2,759 d. $2,280 e. $3,035 \ 4. FF22 Which statement best describes how sources or uses of funds relate to asset or liability accounts on the balance sheet? a. a -d-ecr ase in a liability account represents a source of funds an asset account represents a use of funds c. a decrease in a liability account represents a use of funds d. Two choices/ A and C, are correct e. None of the A-B-C choices are correct
5. FF9 A company's market capitalization equals: a. total stockholders' equity divided by number of shares outstanding b. total assets divided by number of shares outstanding c. market price per share divided by equity book value per share d. number of shares outstanding times market price per share e. equity book value per share divided by market price per share 6. FA3j The balance sheet for the Raider Company shows Total assets of $11,000 financed by $3,200 of Debt and $7,800 of Stockholders' equity. The Raider Company has 810 common shares outstanding, their equity price-to-book ratio is 3.40, and their price-toearnings ratio is 30.4. For the Target Company Total assets of $4,200 are financed by $1,900 of Debt and $2,300 of Stockholders' equity. The Target Company has 680 common shares outstanding, their equity price-to-book ratio is 0.60, and their price-toearnings ratio is 9.7. The Raider Company plans to takeover the Target Company. The Raider Company offers 2 share(s) of Raider stock to Target shareholders that tender 21 Target shares (the exchange ratio is 0.095238; assume fractional shares can be exchanged). Suppose tax effects and synergistic gains and losses equal zero; that is, accumulated sales, costs, and profits remain the same. After the Raider takes control of all Target shares, what is the market capitalization for the new conglomerated Company? a. $23,058 b. $25,364 c. $33,759 d. $27,900 e. $30,690
7. FF10 What usually happens when a raiding company takes over a target company? a. raider company shareholders generally gain wealth and target company shareholders gain wealth b. raider company shareholders generally lose wealth and target company shareholders lose wealth c. raider company shareholders generally lose wealth and target company shareholders gain wealth d. raider company shareholders generally gain wealth and target company shareholders lose wealth e. there are no wealth transfers and so each shareholders' wealth is unchanged 8. FA3f The balance sheet for the Raider Company shows Total assets of $12,400 financed by $2,600 of Debt and $9,800 of Stockholders' equity. For the Target Company Total assets of $5,100 are financed by $1,200 of Debt and $3,900 of Stockholders' equity. The Raider Company plans to takeover the Target Company. The Raider Company has 650 common shares outstanding, their equity price-to-book ratio is 4.30, and their price-toearnings ratio is 45.0. The Target Company has 620 common shares outstanding, their equity price-to-book ratio is 1.10, and their price-to-earnings ratio is 19.6. The Raider Company offers 3 share(s) of Raider stock to Target shareholders that tender 22 Target shares (the exchange ratio is 0.136364; assume fractional shares can be exchanged). Suppose tax effects and synergistic gains and losses equal zero; that is, accumulated sales, costs, and profits remain the same. After the Raider takes control of all Target shares, what is the percentage change in Target shareholder wealth? a. 22% L\ b. 30% c. 27% I d. 24% e. 33%
9. FA1 The Company had quite a few changes during the past year. The changes for their different balance sheet items from last year to this year were (the changes in parentheses are declines; otherwise the changes are increases): ($7,100) for Receivables; ($6,400) for Payables; ($4 1 900) for Cash; ($4AOO) for Short-term Notes Payable; $4,900 for Plant, Property, & Equipment; and ($6,800) for Long-Term Debt. Which statement is most accurate? a. The change in net working capital is ($1,200) and represents a source of financing b. The change in net working capital is {$1AOO) and represents a use of financing c. The change in net working capital is ($1,000) and represents a source of financing d. The change in net working capital is ($1,200) and represents a use of financing e. The change in net working capital is ($1,000) and represents a use of financing ' ( \ '