BUSA Chapter 7 Exam Questions
and Revised Answers All Correct
When a firm is overly dependent on one or more products or markets, and the intensity
of rivalry in that market is intense, the firm may wish to ____ by making an acquisition.
a.
increase new product speed to market
b.
broaden its competitive scope
c.
increase its economies of scale
d.
overcome entry barriers - Answer- B
The fastest and easiest way for a firm to diversity its portfolio of businesses is through
acquisition because
a.
of barriers to entry in many industries.
b.
it is difficult for companies to develop products that differ from their current product line
c.
innovation in both the acquired and the acquiring firm is enhanced by the exchange of
competencies resulting from acquisition
d.
unrelated acquisitions are usually uncompli-cated because the acquired firm is allowed
to continue to function independently as it did before acquisition. - Answer- B
Sales of watches among teenagers and 20-somethings are declining rapidly as this age
group uses cellphones, iPods, and other devices to tell time. A company that
specializes in selling inexpen-sive watches to this age group would do well to consider
____ in order to develop new products other than watches.
a.
unrelated diversification.
b.
backward integration.
c.
forward integration.
d.
horizontal acquisitions. - Answer- A
,JLB, Inc., manufacturers components for use in farm equipment. JLB sells its parts to
U.S. farm equipment manufacturers. The market for tractors and farm implements
needed in the U.S. is declining and there is increasing competition by foreign
manufacturers of farm equipment. JLB should consider an acquisition because
a.
it is suffering from a lack of internal product development.
b.
it is overly dependent on one product market.
c.
it needs to acquire one of its foreign competi-tors so that it can conquer the entry
barriers to the international market.
d.
it requires greater economies of scale. - Answer- B
Nirvana-Bound Vacations is a travel company that specializes in luxury vacations for
mature travelers to India and Thailand. Nirvana-Bound has experienced little growth in
its business, and its management has decided that the company needs to gain access
to new knowledge, increase its capabilities, break its inertia, and become more agile by
acquiring another company. The most suitable acquisition for this specific purpose
would be
a.
a competing firm specializing in senior travel in Asia.
b.
a firm specializing in land-based travel for seniors in the U.S.
c.
a firm specializing in cruise vacations for mature travelers.
d.
an Indian firm specializing in cosmetic surgery vacations for Americans. - Answer- D
Research shows that about ____ percent of mergers and acquisitions are successful.
a.
20
b.
40
c.
60
d.
80 - Answer- A
Each of the following is a rationale for acquisitions EXCEPT
a.
achieving greater market power.
b.
overcoming significant barriers to entry.
c.
increasing speed of market entry.
, d.
positioning the firm for a tactical competitive move. - Answer- D
Problems associated with acquisitions include all of the following EXCEPT
a.
excess managerial focus on acquisitions.
b.
difficulties integrating the two firms.
c.
the high costs of financing the acquisition.
d.
excessive time spent on the due diligence process. - Answer- D
The factors that lead to poor long-term performance by acquisitions include all of the
following EXCEPT firms
a.
insufficient diversification.
b.
having too much debt.
c.
being unable to achieve synergy.
d.
growing too large. - Answer- A
According to a researcher cited in the text, the successful completion of the ____ phase
is probably the single most important determinant of shareholder value creation in
mergers and acquisitions.
a.
pre-acquisition negotiations
b.
pre-acquisition due diligence
c.
post-acquisition integration
d.
post-acquisition restructuring - Answer- C
Without effective due diligence the
a.
acquiring firm is likely to overpay for an acquisition.
b.
firm may miss its opportunity to buy a well-matched company.
c.
acquisition may deteriorate into a hostile takeover, reducing the value creating potential
of the action.
d.
may be unable to act quickly and decisively in purchasing the target firm. - Answer- A
and Revised Answers All Correct
When a firm is overly dependent on one or more products or markets, and the intensity
of rivalry in that market is intense, the firm may wish to ____ by making an acquisition.
a.
increase new product speed to market
b.
broaden its competitive scope
c.
increase its economies of scale
d.
overcome entry barriers - Answer- B
The fastest and easiest way for a firm to diversity its portfolio of businesses is through
acquisition because
a.
of barriers to entry in many industries.
b.
it is difficult for companies to develop products that differ from their current product line
c.
innovation in both the acquired and the acquiring firm is enhanced by the exchange of
competencies resulting from acquisition
d.
unrelated acquisitions are usually uncompli-cated because the acquired firm is allowed
to continue to function independently as it did before acquisition. - Answer- B
Sales of watches among teenagers and 20-somethings are declining rapidly as this age
group uses cellphones, iPods, and other devices to tell time. A company that
specializes in selling inexpen-sive watches to this age group would do well to consider
____ in order to develop new products other than watches.
a.
unrelated diversification.
b.
backward integration.
c.
forward integration.
d.
horizontal acquisitions. - Answer- A
,JLB, Inc., manufacturers components for use in farm equipment. JLB sells its parts to
U.S. farm equipment manufacturers. The market for tractors and farm implements
needed in the U.S. is declining and there is increasing competition by foreign
manufacturers of farm equipment. JLB should consider an acquisition because
a.
it is suffering from a lack of internal product development.
b.
it is overly dependent on one product market.
c.
it needs to acquire one of its foreign competi-tors so that it can conquer the entry
barriers to the international market.
d.
it requires greater economies of scale. - Answer- B
Nirvana-Bound Vacations is a travel company that specializes in luxury vacations for
mature travelers to India and Thailand. Nirvana-Bound has experienced little growth in
its business, and its management has decided that the company needs to gain access
to new knowledge, increase its capabilities, break its inertia, and become more agile by
acquiring another company. The most suitable acquisition for this specific purpose
would be
a.
a competing firm specializing in senior travel in Asia.
b.
a firm specializing in land-based travel for seniors in the U.S.
c.
a firm specializing in cruise vacations for mature travelers.
d.
an Indian firm specializing in cosmetic surgery vacations for Americans. - Answer- D
Research shows that about ____ percent of mergers and acquisitions are successful.
a.
20
b.
40
c.
60
d.
80 - Answer- A
Each of the following is a rationale for acquisitions EXCEPT
a.
achieving greater market power.
b.
overcoming significant barriers to entry.
c.
increasing speed of market entry.
, d.
positioning the firm for a tactical competitive move. - Answer- D
Problems associated with acquisitions include all of the following EXCEPT
a.
excess managerial focus on acquisitions.
b.
difficulties integrating the two firms.
c.
the high costs of financing the acquisition.
d.
excessive time spent on the due diligence process. - Answer- D
The factors that lead to poor long-term performance by acquisitions include all of the
following EXCEPT firms
a.
insufficient diversification.
b.
having too much debt.
c.
being unable to achieve synergy.
d.
growing too large. - Answer- A
According to a researcher cited in the text, the successful completion of the ____ phase
is probably the single most important determinant of shareholder value creation in
mergers and acquisitions.
a.
pre-acquisition negotiations
b.
pre-acquisition due diligence
c.
post-acquisition integration
d.
post-acquisition restructuring - Answer- C
Without effective due diligence the
a.
acquiring firm is likely to overpay for an acquisition.
b.
firm may miss its opportunity to buy a well-matched company.
c.
acquisition may deteriorate into a hostile takeover, reducing the value creating potential
of the action.
d.
may be unable to act quickly and decisively in purchasing the target firm. - Answer- A
