MBA PREP CFIN REVIEW EXAM TEST BANK 100+ QUESTIONS WITH REVISED AND UPDATED ANSWERS
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MBA PREP CFIN REVIEW EXAM TEST BANK 100+ QUESTIONS WITH REVISED AND UPDATED ANSWERS
Synergy between two companies - Answer-complementary situation where value is created in the joining of the firms, could be defined by purely qualitative benefits
legalities determine whether a merger should ...
MBA PREP CFIN REVIEW EXAM TEST
BANK 100+ QUESTIONS WITH REVISED
AND UPDATED ANSWERS
Synergy between two companies - Answer-complementary situation where value is
created in the joining of the firms, could be defined by purely qualitative benefits
legalities determine whether a merger should occur; a valuation determines what form
the business combination shall be - Answer-False
Unlike capital budgeting derivations, it is best when evaluating mergers to rely son a
single quantitative method: this ensure's consistnecy - Answer-False
Book value is unlike liquidation value and replacement value because - Answer-the
latter two are market driven, it depends more fully on accounting methods
THe weakest link in earnings valuation is - Answer-projecting the post-merger P/E
The earnings dilution method is not a valuation method at all; it merely establishes the
maximum price that the company can pay without experiencing a lower EPS next year -
Answer-True
Which of the following statements are true about relevant cash flow valuations -
Answer-they consider the target to be a going concern, they allow for the obligations to
debt holders, no two investments can be analyzed using the same hurdle rate
In order to use a cash flow in perpetuity as a residual value for an asset, it must be
reasonably assumed that the cash flows from that asset have leveled off - Answer-True
From the acquirer's perspective, the absolute maximum price that should ever be paid
for a target is - Answer-the PV of the target's enhanced cash flows, discounted by the
target's appropriate cost of capital
Mergers are more difficult to evaluate than single-asset investments because - Answer-
there are more valuation methods, there are synergies and purchase price negotiations
in mergers
Valuation determines whether a merger is feasible; tax consequences and control
considerations help shape the resultant firm's legal structure - Answer-True
The following should not influence managers to select marginal acquisitions - Answer-
Residual Values
, From an acquirer's perspective, the absolute extremes of a negotiating range in an
acquisition are defined by - Answer-the justifiable price and the present value of the
target's enhanced cash flows
Relevant cash-flow valuations are determined through the use of the target's weighted
average cost of capital - Answer-False
It is impossible for the acquisition price of a target firm ever to fall below book value -
Answer-False
The following could be reasonable estimates of a firm's future terminal value - Answer-
book value, liquidation or salvage value, cash flow in perpetuity based on the flow in the
final years of the evaluation horizon
When a cash flow in perpetuity is calculated - Answer-
The utility of sensitivity analysis is not nearly as great in merger valuations as it is in
capital budgeting - Answer-False
Which of the following is the most likely reason that a merger will not be as financially
rewarding as initially projected - Answer-The projected cash flow enhancements will not
materialize
In many ways, managers can consider the opinions of capital markets and the firm's
shareholders to be identical - Answer-True
Every financing decision involves which consideration? - Answer-How much, what the
target capitalization is, what the dividend policy is
A FRICTO analysis enables prudent managers to assess investment decisions -
Answer-False
Flexibility issues are those which - Answer-deal with a company's financing reserves,
impact the debt capacity that a firm should maintain
Income issues deal with - Answer-the impact of a financial alternative on the income
statement, factors which may affect shareholder income, income dilution
Risk issues are those which - Answer-involve recurrent developments which may
impact a firm's ability to meet contractual agreements
The issue of control is not important - Answer-if debt is issued
Timing issues involve - Answer-The cost of the alternative forms of capital, the
sequencing of alternatives, once funding amounts are known, marriage of both
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