Question 1
Which of the following statements is most CORRECT?
Operating economies are never a motive for mergers.
Tax considerations often play a part in mergers. If one firm has excess
cash, purchasing another firm
...
Question 1
Which of the following statements is most CORRECT?
Operating economies are never a motive for mergers.
Tax considerations often play a part in mergers. If one firm has excess
cash, purchasing another firm exposes the purchasing firm to additional
taxes. Thus, firms with excess cash rarely undertake mergers.
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4/19/2020 Week 6_Quiz: FINC 5880 MP S2 2018 Advanced Corporate Finance
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The smaller the synergistic benefits of a particular merger, the greater the
scope for striking a bargain in negotiations, and the higher the probability
that the merger will be completed.
Managers who purchase other firms often assert that the new combined
firm will enjoy benefits from diversification, including more stable earnings.
However, since shareholders are free to diversify their own holdings, and
at what's probably a lower cost, diversification benefits is generally not a
valid motive for a publicly held firm.
Since mergers are frequently financed by debt rather than equity, a lower
cost of debt or a greater debt capacity are rarely relevant considerations
when considering a merger.
Question 2
Which of the following statements about valuing a firm using the APV
approach is most CORRECT?
The horizon value is calculated by discounting the expected earnings at
the WACC.
The horizon value is calculated by discounting the free cash flows beyond
the horizon date and any tax savings at the levered cost of equity.
The horizon value must always be more than 20 years in the future.
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4/19/2020 Week 6_Quiz: FINC 5880 MP S2 2018 Advanced Corporate Finance
https://worldclassroom.webster.edu/courses/1321635/quizzes/1824283 3/9
The horizon value is calculated by discounting the free cash flows beyond
the horizon date and any tax savings at the cost of debt.
The horizon value is calculated by discounting the free cash flows beyond
the horizon date and any tax savings at the WACC.
Question 3
Which of the following statements is most CORRECT?
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