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Question(s) / Instruction(s):

Question 1

The Celluloid Collar Corporation has $210,000 in tax loss carryforwards. The Bowstring Shirt Company, a firm in the 30% tax bracket, would be willing to pay (on a nondiscounted basis) the sum of ______________ for the carryforward alone.

a.            $108,000

b.            $52,000

c.             $63,000

d.            $1,200,000

 

 

Question 2

Leasing is a popular form of financing because:

a.            lease provisions are generally less restrictive than a bond indenture.

b.            the lessor likely has experience with the equipment being leased.

c.             the lessee may not be financially able to purchase.

d.            all of these.


 

Question 3

White Knights:

a.            advise companies on ways to avoid being taken over.

b.            offer a higher purchase price and more friendly offer in the event of an unsolicited and unfriendly takeover attempt.

c.             attempt to make money in the stock market on stocks that are likely merger candidates.

d.            buy depressed stock of quality companies when merger talks are discontinued.


 

Question 4

The term debenture refers to:

a.            long-term, secured debt.

b.            long-term, unsecured debt.

c.             the after-acquired property clause.

d.            a 100-page document covering the specific terms of the offering.


 

Question 5

The two step buy-out is a recent merger ploy that has which of the following characteristics?

a.            It is negotiated in a social, rather than a business setting.

b.            The acquiring firm offers to pay a very high price for the target companys stock, and a short time later announces another price which may be higher or lower.

c.             The acquiring firm offers to pay a very high price for the target companys stock for a limited time only, after which it will pay a considerably lower price.

d.            It forces stockholders to sell out.


 

Question 6

The document that outlines the covenants and duties existing between bondholders and the issuing corporation is called:

a.            an indenture.

b.            a debenture.

c.             secured debt.

d.            protective covenants.


 

Question 7

A call feature allows:

a.            the bondholder to redeem the bond before the maturity date.

b.            the corporation to redeem the bond before the maturity date.

c.             the corporation to convert the bond to common stock.

d.            the bondholder to demand increased collateral.


 

Question 8

Which of the following is an advantage of floating rate bonds to investors?

a.            They allow for locking in a multiplier of the initial investment.

b.            Their prices tend to be highly stable regardless of interest rate changes.

c.             They are sold at a deep discount.

d.            All of these.


 

Question 9

The Prad Corporation is considering a merger with the Stone Company which has 500,000 outstanding shares selling for $30. An investment banker has advised that to succeed in its merger Prad Corp. would have to offer $45 per share for Stones stock. Prad Corp. stock is selling for $25. How many shares of Prad Corp. stock would have to be exchanged to acquire all of Stones stock?

a.            266,667

b.            600,000

c.             900,000

d.            none of these

 

Question 10

The direct financial motives for merger activity include all of following EXCEPT:

a.            the portfolio effect.

b.            improved financial posture and greater debt.

c.             the utilization of tax loss carry forwards.

d.            vertical integration.


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