Advanced Corporate Finance
Study Guide Questions
Course Introduction
Advanced Corporate Finance delves into the complex financial strategies and analytical tools essential for corporate decision-making at the highest level. The course covers topics such as capital structure optimization, corporate valuation techniques, mergers and acquisitions, risk management, and payout policies. Students will learn to apply modern financial theories to solve real-world corporate finance problems, interpret cutting-edge research, and understand the impact of financial policy decisions on firm value. Through a combination of case studies, quantitative analysis, and practical applications, participants gain the skills required to make informed, strategic financial choices in dynamic business environments.
Recommended Textbook Mergers Acquisitions and Corporate Restructurings 6th Edition by Patrick A. Gaughan
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294 Flashcards
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Chapter 1: Introduction
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Q1) Targets can use an asset sell-off to avoid legitimate liabilities.
A)True
B)False
Answer: False
Q2) Bidders use merger arbitrage as a way of lowering their takeover costs.
A)True
B)False
Answer: False
Q3) With an SPAC bidding shareholders are quite familiar with the target to be acquired when they purchase the SPAC's shares in its IPO.
A)True
B)False
Answer: False
Q4) Chartejee and Yan's research has showed:
A)Mergers don't pay
B)Contingent value rights are used when the parties have asymmetric information
C)Conglomerate mergers are more likely to yield negative returns
Answer: B
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Page 3
Chapter 2: History of Mergers
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Q1) In the 2000s, which of the following regions/nations exhibited a pattern of heightened M&A volume although the total level varied by the size of the economy?
A)Central and South America
B)Australia
C)Europe
D)All of these
E)None of the above
Answer: D
Q2) Antitakeover defense became increasingly sophisticated during the following merger waves:
A)First
B)Second
C)Third
D)Fourth
Answer: C
Q3) LBOs became increasingly popular during the fourth merger wave.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Legal Framework
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Q1) Aktas, DeBodt, and Roll found that the greater the adverse impact on European rivals resulting from deals by foreign companies, the more likely that regulators would move to oppose the deal.
A)True
B)False
Answer: True
Q2) The European Union has finally adopted one consistent set of takeover rules which all members must abide by.
A)True
B)False Answer: False
Q3) In the United States target shareholders must have at least what time period to consider the original bids in cases when there is a competing tender offer?
A)10 days
B)5 days
C)2 days
D)One month
Answer: A
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Chapter 4: Merger Strategy
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Q1) Revenue enhancing synergies are more difficult to achieve than cost economies
A)True
B)False
Q2) United Airlines' merger with Continental Airlines is an example of:
A)Vertical integration
B)Conglomerate formation
C)Horizontal integration
D)None of the above
Q3) Both Eckbo and Stillman found:
A)No negative shareholder responses from competitors to horizontal deals
B)Significant negative effects
C)The shareholder wealth effects were delayed and occurred one to two years later
D)None of the above
Q4) Bradley, Desai, and Kim found:
A)Horizontal deals yield greater gains than vertical deals
B)Evidence of the winner's curse
C)Tender offers yield gains for target shareholders
D)Bad bidders make good targets
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Chapter 5: Antitakeover Measures
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Q1) Which of the following are usually considered active antitakeover measures?
A)Greenmail
B)Poison pills
C)Corporate charter amendments
D)All of the above
Q2) The case involving this company established the legality of poison pills in the United States:
A)Crown-Zellerbach
B)Kraft Foods
C)Universal Foods
D)Household International
Q3) Jarrell found that litigation can increase shareholder value through facilitating auctions.
A)True
B)False
Q4) Poison pill adoptions have:
A)Increased in recent years
B)Deceased in recent years
C)Been stable
D)Have slowly and steadily increased
Page 7
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Chapter 6: Takeover Tactics
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Q1) Which of the following are used to implement a hostile takeover of a target?
A)Poison pill
B)Tender offer
C)Corporate charter amendments
D)All of the above
Q2) Bange and Mazzeo found that target companies whose CEO and chairman were the same person were more likely to be recipients of bypass offers.
A)True
B)False
Q3) Research has showed that "bad bidders" are no more likely to become targets of takeover bids.
A)True
B)False
Q4) Which of the following professionals are often members of a bidder's tender offer team?
A)Lawyers
B)Investment bankers
C)Accountants
D)All of the above
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Chapter 7: Hedge Funds As Activist Investors
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Q1) Which of the following are examples of factors that facilitated the growth of activist hedge funds over the years 2012-2015?
A)Rising stock market
B)High cash balances of U.S.companies
C)Growth of the U.S.economy
D)All of the above
Q2) Research, such as the work of Greenwood and Schoar, found that financial performance of companies improve after activists establish stock positions in the firms.
A)True
B)False
Q3) Which of the following may be a valid criticism of activist hedge funds?
A)May cause target firms to be too short-term oriented
B)Tend to reduce target financial performance
C)Often fail to yield positive returns for investors
D)All of the above
E)None of the above
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Chapter 8: Going-Private Transactions and Leveraged Buyouts
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Q1) Research by Cao and also data from Mergerstat showed that:
A)LBO premiums were less than M&A premiums but increased over time
B)Decreased over time
C)No discernable pattern
D)None of the above
Q2) Research shows that audit fees constitute what percent of total costs of being public?
A)25% to 35%
B)Approximately 90%
C)50% to 60%
D)Roughly one third
Q3) Which of the following is true of senior debt?
A)The rate on senior debt is 2% to 3% above prime
B)Senior debt is usually about a quarter to a third of total LBO debt
C)The term is usually 5 to 10 years
D)All of the above
Q4) Kaplan found that the post-buyout investors did not enjoy the tax-related benefits of LBOs.
A)True
B)False
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Chapter 9: The Private Equity Market
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Q1) Private equity firms have typically been compensated according to the following "formula":
A)2% of invested capital
B)5 and 1
C)2 and 20
D)None of the above
Q2) Kaplan and Schoar found which of the following with respect to private equity firms?
A)Growth in the industry
B)Decline in the industry
C)Persistence in returns
D)All of the above
E)None of the above
Q3) Drexel Burnham and Lambert and Michael Milken were pioneers in the development of the hedge fund industry.
A)True
B)False
Q4) Private equity firms used to be referred to as LBO firms.
A)True
B)False
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Chapter 10: The Junk Bond and the Leveraged Loan Market and Stapled Financing
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Q1) Altman and Namacher found the following historical average default rates applied to high-yield bonds: j.
A)5% k.
B)2% l.
C)10% m.
D)none of these
Q2) Asquith et al.showed that a failure to consider which of the following was a flaw in the Altman and Namacher junk bond studies?
A)Bond returns
B)Aging
C)Bond ratings
D)None of the above
E)All of the above
Q3) Witmore's research implied that the Asquith et al.study may have greatly overestimated the risk of high yield bonds.
A)True
B)False
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Page 12
Chapter 11: Corporate Restructuring
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Q1) If a public company issues stock in its own subsidiary, these shares do not have to be registered by the SEC in order to be publicly traded as the parent company's shares are already registered.
A)True
B)False
Q2) In the United States, in order for a spin-off to be nontaxable, the following must be the case:
A)Both the parent company and the spun-off entity must be in business for at least ve years before the restructuring.
B)The subsidiary must be at least 80% owned by the parent company.
C)The parent company and the spun-off entity must be in the same industry
D)Both a and b
E)Both b and c
Q3) Sell-offs of their parts supplier units enabled GM and Ford to successfully use sell-offs to avoid union compensated-related liabilities of those units.
A)True
B)False
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Chapter 12: Restructuring in Bankruptcy
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Q1) The debtor in possession is another name for the bankrupt company.
A)True
B)False
Q2) Larger companies tend to do better in Chapter 11 bankruptcy than smaller ones.
A)True
B)False
Q3) In the United States, the rules governing corporate reorganizations are detailed in which part of the bankruptcy law?
A)Chapter 13
B)Chapter 11
C)Chapter 9
D)None of the above
Q4) Which of the following are drivers of economic failure?
A)Revenues less than costs
B)Return on investment below costs of capital
C)Profitability below expected levels
D)All of the above
Q5) DIP financing refers to financing of leveraged buyouts.
A)True
B)False
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Chapter 13: Corporate Governance
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Q1) Malmendier and Tate analyzed the performance of CEOs who were awarded this status in the form of relatively high compensation, awards, and press coverage.They found:
A)Such CEOs underperforming compared to their prior performance as well as the performance of their peers
B)The compensation of such CEOs rose significantly on attainment of the superstar status but their performance declined
C)Such CEOs spent a disproportionate amount of time doing other activities such as attending public and private events as well as writing books
D)All of the above
E)None of the above
Q2) When challenged, which is not common, courts have found golden parachute agreements to be an illegal giveaway of shareholder wealth.
A)True
B)False
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Chapter 14: Joint Ventures and Strategic Alliances
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Q1) Strategic alliances are common in the pharmaceutical industry.
A)True
B)False
Q2) The following can be a reason why joint ventures may not succeed:
A)Disagreement among participants
B)Distrust among the participants
C)Payment of too high a takeover premium
D)All of the above
E)Both a and b
Q3) One of the reasons why companies enter into strategic alliances is to:
A)Jointly benefit from specific knowledge resources of one of the partners
B)Gain from a situation where a smaller partner possesses specific knowledge and expertise
C)Totally avoid antitrust conflicts
D)Both a and b
E)Both a and c
Q4) Chan, Kensinger, Keown, and Martin found significant transfers of wealth from alliance partners.
A)True
B)False
Page 16
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Chapter 15: Valuation
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Q1) For many years the concentrated holdings by large block holders made hostile takeovers in Europe more difficult to complete.
A)True
B)False
Q2) For a company with positive debt:
A)Enterprise value is less then equity value
B)Enterprise value equals equity value
C)Enterprise value is more than equity value
D)None of these
Q3) Which of the following factors will influence the initial potential dilution of earnings per share?
A)Differential in P/E ratios
B)Relative size of the two firms as measured by earnings
C)Taxability of target earnings
D)All of the above
E)Both a and b
Q4) In Rau and Vermaelen's research, glamour firms have high book to market value ratios.
A)True
B)False
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Chapter 16: Tax Issues in Mergers & Acquisitions
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Q1) In a Type B reorganization in the United States, at least what percent of the payment to the target must be stock in the acquiring company:
A)20%
B)50%
C)80%
D)100%
E)No specific percentage
Q2) One advantage of a Type C reorganization is that the bidder does not need to be concerned about the target soliciting its shareholder's approval of the transaction.
A)True
B)False
Q3) In the United States, goodwill is amortized over a period not exceeding:
A)10 years
B)20 years
C)30 years
D)40 years
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