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MERGERS AND ACQUISITIONS (M&A)
MADELING Final Exam Newest Exam Preparation
With Complete Questions And Correct Answers With
Rationales | Already Graded A+||Brand New Version!!
QUESTION 1
In a statutory merger, which of the following events typically occurs?
A) Both companies dissolve and form a new entity.
B) The acquiring company assumes the assets and liabilities of the
target, and the target ceases to exist as a separate legal entity.
C) The target company continues to exist as a wholly-owned subsidiary.
D) Both companies continue to exist as separate entities with a joint
management agreement.
Answer: B
Explanation: In a statutory merger, the acquiring company absorbs the
target company. The target dissolves, and its assets and liabilities
transfer to the acquirer by operation of law. Option A describes a
consolidation, not a merger. Option C describes a stock acquisition or
holding company structure. Option D is a joint venture or strategic
alliance.
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QUESTION 2
Which of the following is a primary strategic rationale for horizontal
mergers?
A) Achieving economies of scale
B) Vertical integration to control supply chains
C) Diversifying into unrelated industries
D) Reducing financial leverage
Answer: A
Explanation: Horizontal mergers combine competitors in the same
industry, primarily to achieve economies of scale, increase market
share, and reduce competitive intensity. Option B is vertical integration.
Option C is conglomerate diversification. Option D is a financial
restructuring goal, not a strategic rationale for horizontal deals.
QUESTION 3
The pooling of interests method of accounting for mergers:
A) Is currently the preferred method under GAAP.
B) Allows the acquirer to record the target's assets at fair value.
C) Was largely eliminated by the FASB in 2001 in favor of the purchase
method.
D) Requires the acquirer to recognize goodwill.
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Answer: C
Explanation: The pooling of interests method, which combined book
values without recognizing goodwill, was eliminated by FASB Statement
141 in 2001. The acquisition method (formerly purchase method) is now
required. Option B and D describe the acquisition method, not pooling.
QUESTION 4
What is the term for the difference between the purchase price and the
fair value of identifiable net assets acquired in a business combination?
A) Bargain purchase gain
B) Goodwill
C) Negative goodwill
D) Purchase price premium
Answer: B
Explanation: Goodwill is the excess of the consideration transferred over
the fair value of identifiable net assets acquired. If the purchase price is
less, a bargain purchase gain is recognized. The premium is the
percentage paid over the target's stock price.
QUESTION 5
In a tender offer, the acquirer:
A) Negotiates directly with the target company's management.
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B) Makes a public offer to buy shares directly from shareholders at a
specified price.
C) Merges the target into a newly created shell corporation.
D) Acquires assets rather than stock.
Answer: B
Explanation: A tender offer is a public solicitation to shareholders to sell
their shares at a stated price, often at a premium. It can be hostile if
management opposes it. Option A describes a negotiated merger.
Option C is a reverse triangular merger. Option D is an asset purchase.
QUESTION 6
Which of the following is NOT a typical defense against a hostile
takeover?
A) Poison pill
B) White knight
C) Golden parachute
D) Greenmail
Answer: D
Explanation: Greenmail is the payment of a premium to a hostile bidder
to buy back its shares and end the threat; it is a defense tactic but is
often considered a payment to the raider. All other options are well-
known defenses: poison pill (dilution), white knight (friendly acquirer),
golden parachute (large compensation to executives if control changes).
MERGERS AND ACQUISITIONS (M&A)
MADELING Final Exam Newest Exam Preparation
With Complete Questions And Correct Answers With
Rationales | Already Graded A+||Brand New Version!!
QUESTION 1
In a statutory merger, which of the following events typically occurs?
A) Both companies dissolve and form a new entity.
B) The acquiring company assumes the assets and liabilities of the
target, and the target ceases to exist as a separate legal entity.
C) The target company continues to exist as a wholly-owned subsidiary.
D) Both companies continue to exist as separate entities with a joint
management agreement.
Answer: B
Explanation: In a statutory merger, the acquiring company absorbs the
target company. The target dissolves, and its assets and liabilities
transfer to the acquirer by operation of law. Option A describes a
consolidation, not a merger. Option C describes a stock acquisition or
holding company structure. Option D is a joint venture or strategic
alliance.
,2|Page
QUESTION 2
Which of the following is a primary strategic rationale for horizontal
mergers?
A) Achieving economies of scale
B) Vertical integration to control supply chains
C) Diversifying into unrelated industries
D) Reducing financial leverage
Answer: A
Explanation: Horizontal mergers combine competitors in the same
industry, primarily to achieve economies of scale, increase market
share, and reduce competitive intensity. Option B is vertical integration.
Option C is conglomerate diversification. Option D is a financial
restructuring goal, not a strategic rationale for horizontal deals.
QUESTION 3
The pooling of interests method of accounting for mergers:
A) Is currently the preferred method under GAAP.
B) Allows the acquirer to record the target's assets at fair value.
C) Was largely eliminated by the FASB in 2001 in favor of the purchase
method.
D) Requires the acquirer to recognize goodwill.
,3|Page
Answer: C
Explanation: The pooling of interests method, which combined book
values without recognizing goodwill, was eliminated by FASB Statement
141 in 2001. The acquisition method (formerly purchase method) is now
required. Option B and D describe the acquisition method, not pooling.
QUESTION 4
What is the term for the difference between the purchase price and the
fair value of identifiable net assets acquired in a business combination?
A) Bargain purchase gain
B) Goodwill
C) Negative goodwill
D) Purchase price premium
Answer: B
Explanation: Goodwill is the excess of the consideration transferred over
the fair value of identifiable net assets acquired. If the purchase price is
less, a bargain purchase gain is recognized. The premium is the
percentage paid over the target's stock price.
QUESTION 5
In a tender offer, the acquirer:
A) Negotiates directly with the target company's management.
, 4|Page
B) Makes a public offer to buy shares directly from shareholders at a
specified price.
C) Merges the target into a newly created shell corporation.
D) Acquires assets rather than stock.
Answer: B
Explanation: A tender offer is a public solicitation to shareholders to sell
their shares at a stated price, often at a premium. It can be hostile if
management opposes it. Option A describes a negotiated merger.
Option C is a reverse triangular merger. Option D is an asset purchase.
QUESTION 6
Which of the following is NOT a typical defense against a hostile
takeover?
A) Poison pill
B) White knight
C) Golden parachute
D) Greenmail
Answer: D
Explanation: Greenmail is the payment of a premium to a hostile bidder
to buy back its shares and end the threat; it is a defense tactic but is
often considered a payment to the raider. All other options are well-
known defenses: poison pill (dilution), white knight (friendly acquirer),
golden parachute (large compensation to executives if control changes).
