Mf0002 Mergers Acquisition Model Paper

MODEL QUESTION PAPER MERGERS AND ACQUISITIONS SECTION A – 1 MARK ANSWER ALL THE QUESTIONS 1. Why is external growth preferable to internal growth? a. External growth is hassle free b. External growth is less expensive mode for expansion c. Internal growth involves a longer implementation period & entails greater uncertainties . d. External growth alone maximizes the wealth of shareholders 2. ____________is defined as combination of two or more companies into a single company. a. Takeover b. Merger c. Acquisition d. None 3. Which future vision for an organization defines its purpose, where it is heading and what it intends to do once it gets there? a. Growth b. Competition c. Post merger planning process d. Restructuring process 4. Post - merger process excludes: a. Cultural integration b. Retention of key people c. Laying the groundwork for a successful integration d. Capturing well defined sources of value as quickly and efficiently in possible. 5. What is the need of restructuring? a. It is done as a part of routine process b. It is done according to whims and fancies of the management. c. To flatten organization so that it could encourage culture of initiatives and innovations d. It is compulsory for every firm at periodic intervals 6. What strategic choice a parent firm may take when one of its subsidiaries is growing faster and carrying higher valuation than other business? a. Divestitures

b. Equity carve outs c. Spin offs d. Leveraged buyouts 7. Increase in financial return due to high debt and tax shield are main advantage of a. LBO b. MBO c. MLPs d. ESOPs 8. What is the initial process in merger, buyout or restructuring? a. Valuation of the target company b. Stock price movement of the target company c. Market capitalization of the target company d. Efficiency of the management of the target company 9. What aspects are ignored while valuing both the acquired company and the target company? a. The maximum price that should be paid to the shareholders of the merged company b. The price justification with reference to the value of the asset. c. The strength of the surviving company as reflected in the market price. d. The capital structure of the merged entity 10. Which model determines the value of the firm based on the market price of the similar business? a. Absolute value model b. Relative value model c. KKR model d. Peter Ducker’s model 11. The first, second and the third process of merger & acquisition are: a. Strategic objective, strategic evaluation, financial evaluation b. Strategic objective, financial evaluation, strategic evaluation c. Strategic evaluation, strategic objective, financial evaluation d. Strategic evaluation, financial evaluation, strategic objective 12. Integration of functional areas involve: a. Cultural integration of policies , procedures & styles b. Function integration of accounting , R & D, procurement c. Emotional integration of personnel d. Board of director's approval 13. One of the conditions in ______ is, the business of the transferor company is intended to be carried on, after the amalgamation by the transferor company.

a. b. c. d.

Expansion Merger MBO LBO

14. ICAI issued accounting standards for 'Accounting for Amalgamation' that came into effect on ________ . Is this standard mandatory? a. 1-4-1991, Yes it is mandatory b. 1-4-1991, No it is not mandatory c. 1-4-1995, Yes it is mandatory d. 1-4-1995, No it is not mandatory 15. Corporate takeover in India are governed by : a. SEBI (takeover) code b. Listing agreement with stock exchange c. SEBI (takeover) code & Listing agreement with stock exchange d. Companies Act 1956 16. If the merger & takeover is done through negotiation with the consent of target companies it is termed as: a. Hostile takeover b. Friendly takeover c. Takeover bid d. Hostile bid 17. Laws are enacted to discourage. a. Oligopolistic corporate behavior b. Monopolistic corporate behavior c. Irrational corporate behavior d. Unlawful corporate behavior 18. What regulation is not a part of mergers & acquisitions? a. MRTP Act 1969 b. FEMA 1999 c. SEBI Regulation Act1956 and the SEBI Act 1992 d. SEBI ( issue and testing of debt securities / regulation 2008) 19. The scheme of merger / amalgamation is governed by the provision of a. Section 390 & section 111 of companies Act 1956 b. Section 390 & Section 110 of companies Act 1956 c. Section 391 to 394 & Section 111 of companies Act 1956 d. Section 399& Section 111 of companies Act 1956 20. What is excluded in buy back routes?

a. b. c. d.

From existing shareholders on proportionate basis Open Market Operations Takeover bid Repurchase of share issued through employees share option

SECTION B- 2 MARKS 1. ______ is a process through which capital structure is changed, labour readjustment is made, technology up gradation takes place etc. a. Demerger b. Acquisition c. Merger d. Restructuring 2. _______is the act of acquiring company effective control by one company over assets or management of another company without any combination of companies. a. Takeover b. Acquisition c. Merger d. Restructuring 3. While planning for mergers and acquisitions, which type of visions are identified? a. Growth & Evaluation of company capabilities b. Growth & competition c. Competition & expectation of stakeholder d. Competition & organizational change. 4. Corporate strategy is concerned with: a. Assessing pre-existing relationship if any between the firm and specific potential partner. b. Exploring all possibilities into specific of merger, joint venture, business alliance and takeover. c. The ways of optimizing the portfolios of businesses and how this portfolio can be changed to serve the interest of stakeholders. d. Integration of people and process post merger. 5. When is a merger said to be at a premium ? When the offer price is a. Higher than the target firm's pre-merger market value b. Lower than the target firm's pre-merger market value c. Higher than the target firm's pre-merger book value d. Lower than the target firm's pre-merger book value

6. What method is based on assessing the current cost of duplicating the properties or constructing similar enterprise in design and material? a. Cost basic valuation b. Reproduction valuation c. Substitution d. Market value 7. What does authority & responsibility of integration planning process involve? a. Communicating integration planning to all employees b. Deciding the authority & responsibility relationship c. Assessment of the gaps in the skills & competencies d. Designing the new organization structure 8. Methods of Accounting for Amalgamations a. The Pooling of Interest method and Payment Method b. The purchase method and Lumpsum Method c. Consideration method and purchase method d. The pooling of interest method and the purchase method 9. What is the percentage of shareholding does the equity shareholders need to hold to become the equity shareholders of the transferee company if the amalgamation is in the nature of merger? a. 100% of the face value b. 90% of the face value c. 90% of the market value d. 90% of the average of face value & merged value 10. ____________is an offer to buy current shareholder's stock at a specified price, often with the objective of gaining centers of the company a. Hostile takeover b. Tender offer c. Defensive merger d. Textual strategic 11. Different types of bid excluded: a. Mandatory bid b. Partial bid c. Tender offer d. Competitive bid

SECTION C- 4 Marks 1. Match the Following 1. Petroleum exploration 2. Sale of petroleum products to dealers / retailer 3. Merger of coal mining & railway company 4. Joining of 2 or more companies not related to each other

a. Forward vertical integration b. Original company c. Conglomerate merger d. Backward integration e. Merger- vertical combination

a. 1e,2b,3a,4c b. 1d,2a,3e,4c c. 1d,2b,3e,4a d. 1e,2a,3e,4c 2. Match the following a. Stage 1 : Corporate strategy developments b. Stage 2 : Organizing for acquisition c. Stage 3 : Deal structuring negotiation d. Stage 4 : Post acquisition integration. a. b. c. d.

a. This stage involves an understanding of the acquisition decision process is important b. This stage assumes M & A process as a project so as to set good team. c. This stage aims at enhancing stakeholder's . And wealth d. This stage involves valuing target companies & choice of advisers etc.

1d, 2a, 3d, 5b 1c, 2a, 3d, 4b 1c, 2b, 3a, 5b 1d, 2b, 3a, 4c

3. Match the following 1. It is a stock bonus which are required to invest primarily in the securities of the employer firm 2. It is a partnership in which two or more firms carry out a specific project in a selected are of business 3. Several smaller partnerships were merged with partners receiving unit in exchange for their partnership interest. 4. It is a form a corporate divergent by the way of going private through management's purchase of all outstanding shares.

a. Joint venture b. MLP

c. MBO

d. Non leveraged ESOPs

e. LBO a. 1e,2b,3a,4c b. 1d,2a,3b,4c c. 1d,2b,3a,4e d. 1e,2a,3b,4c

4. Match the following The following steps are involved in the financial evaluation of a merger 1. First step a. Project cash flows magnitudes and their timings 2. Second step b. Identify growth and profitability assumptions 3. Third step c. Estimate the cost of capital 4. Fourth step d. Estimate change in net working capital e. Compute NPV for each scenario a. 1a 2b, 3c, 4e b. 1a, 2b, 3c, 4d c. 1e, 2a, 3c, 4b d. 1b, 2a, 3c, 4e 5. Match the following: Strategic Interdependence and Autonomy 1. High need for organizational autonomy & low need for strategic interdependence 2. High need for organizational autonomy & high need for strategic interdependence 3. Low need for organizational autonomy & low need for strategic interdependence 4. Low need for organizational autonomy & high need for strategic interdependence a. b. c. d.

a. Symbiosis b. Absorption c. Preservation d. Holding company

1d, 2b, 3a, 4c 1c, 2a, 3d, 4b 1d, 2a, 3b, 4c 1c, 2b, 3a, 4c

6. Match the following: 1. Methods of accounting for Amalgamation 2. Amalgamation is the nature of merger is listed in 3. Amalgamation as purchase Of asset 4. The difference between purchase consideration and value of assets

a. Paragraph 3(a) b. Pooling of interest method & the purchase method. c. Purchase method d. paragraph 3(e)

is adjusted in general reserve. e. Pooling method a. b. c. d.

1b, 2d, 3c, 4e 1b, 2a, 3e, 4c 1b, 2a, 3c, 4e 1b, 2d, 3e, 4c

7. Match the following: 1. Poison pill

a. The target company sells a block of its stock to a third party it considers to be friendly .

2. White knights

b. The precious asset of the company is sold off

3. While square

c. Management of the target company offers to be acquired by a friendly company to escape from a hostile takeover.

4. Crown Jewel

d. It represents the creation of securities carrying special rights exercisable by a triggering event

a. b. c. d.

1d, 2c, 3a, 4b 1c, 2d, 3a, 4b 1d, 2c, 3b, 4a 1c, 2d, 3b, 4a