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Multiple Choice Quiz
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1
In traditional M&A theory
A)Market prices of acquiring firms are typically higher than market prices of targets
B)Target firms capture the synergy from the merger
C)Shareholders of both firms will be indifferent about the type of payment used to finance the acquisition
D)All of the above
E)None of the above
2
The winner’s curse problem in M&A deals
A)Makes bidders typically overpay for targets
B)May be driven by managerial hubris
C)Is an example of a behavioral bias
D)Both a and c are correct
E)All of the above
3
Suppose you are a rational manager in an efficient market. Your firm is worth $10 million. You are considering making a bid for a target firm that is estimated to be worth $2 million. The merger is also expected to reduce costs because of economies of scale and the value of this cost reduction is $1 million. The maximum you should be willing to pay to buy the target firm is
A)$1 million
B)$2 million
C)$3 million
D)Between $2 and $ million
E)The answer cannot be found with the information given
4
In the situation above, the minimum you should expect to pay for the target is
A)$1 million
B)$2 million
C)$3 million
D)Between $2 and $ million
E)The answer cannot be found with the information given
5
Suppose you agree to pay $2 million for the target and decide to pay with a 50-50 mix of cash and stock. The percentage of shares you offer must be
A)7.7%
B)8.3%
C)11%
D)16.67%
E)Cannot be calculated with the information provided
6
Bidder managers may not be able to appropriate all the synergy in an acquisition for their own shareholders
A)If there are multiple bidders for the same target
B)If the target firm managers are overconfident about their true value
C)If they focus on issues such as EPS impact rather than on shareholder value
D)All of the above
E)None of the above
7
Poor acquisition decisions are made by
A)Managers who are both overconfident and over-optimistic
B)Managers who are cash constrained
C)Managers who have ample financial slack
D)All of the above
E)Both a and c are correct
8
Managers who are both over-optimistic and over-confident
A)Overestimate their synergy from acquisitions while believing their own firms to be undervalued
B)Prefer to pay in cash rather than stock
C)Tend to discount the negative market reaction to their acquisitions
D)All of the above
E)None of the above





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