MBA 620 - Module 9-1 Project Submission -
Acquisition Proposal | 2026 Update with
complete solutions - SNHU.
Practice Question Bank & Answer Rationale
THIS PACK CONTAINS
90 exam-style multiple-choice questions. Each question includes the correct answer and a complete rationale
for focused revision.
COVERAGE
This exam assesses a graduate student's ability to develop, evaluate, and defend a comprehensive
acquisition proposal. It covers target screening, valuation methodologies, synergy analysis, financing strategy,
regulatory compliance, and post-merger integration planning. Questions require application of financial theory,
strategic frameworks, and real-world deal considerations.
STUDY GUIDE
Recommended duration: 3 hours. Passing target: 80% (B- or higher).
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,1. Which of the following best describes the primary purpose of a 'quality of earnings'
(QoE) report in the acquisition due diligence process?
[ ] A. To verify the accuracy of the target's audited financial statements and internal controls.
[ ] B. To assess the sustainability and true economic earnings of the target by adjusting for non-recurring
items and accounting distortions.
[ ] C. To determine the tax implications of the proposed transaction structure.
[ ] D. To evaluate the creditworthiness of the target's customer base and receivables.
CORRECT: B. To assess the sustainability and true economic earnings of the target by adjusting for
non-recurring items and accounting distortions.
A QoE report focuses on adjusting reported earnings to reflect sustainable, cash-based earnings by
identifying non-recurring items, aggressive accounting policies, and pro forma adjustments. It is not an audit
(A), tax analysis (C), or credit review (D).
2. In a discounted cash flow (DCF) valuation for an acquisition, which of the following is
the most appropriate treatment of synergies expected from the deal?
[ ] A. Include synergies in the target's free cash flows and discount at the target's standalone WACC.
[ ] B. Include synergies in the combined entity's free cash flows and discount at a rate reflecting the
riskiness of the synergies.
[ ] C. Exclude synergies entirely from the DCF and value them separately as a real option.
[ ] D. Add the present value of synergies to the target's standalone DCF value using the acquirer's cost
of equity.
CORRECT: B. Include synergies in the combined entity's free cash flows and discount at a rate
reflecting the riskiness of the synergies.
Synergies should be valued as part of the combined entity's cash flows and discounted at a rate that reflects
their risk, which is often different from the target's standalone WACC. Using the target's WACC (A) ignores
the combined risk profile; excluding synergies (C) undervalues the deal; using the acquirer's cost of equity
(D) may not match the risk of the synergies.
3. Which of the following is the most common rationale for a company to pursue a
horizontal acquisition?
[ ] A. To diversify into unrelated business lines and reduce overall portfolio risk.
[ ] B. To achieve economies of scale and increase market share by combining with a direct competitor.
[ ] C. To secure a reliable supply of raw materials by acquiring a key supplier.
[ ] D. To gain access to new distribution channels by acquiring a downstream customer.
CORRECT: B. To achieve economies of scale and increase market share by combining with a direct
competitor.
Horizontal acquisitions involve combining with competitors in the same industry to increase market power
and achieve cost efficiencies. Diversification (A) is conglomerate, backward integration (C) is vertical, and
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, forward integration (D) is also vertical.
4. When structuring an acquisition, which of the following payment methods typically
results in the target shareholders deferring capital gains taxes until they sell the acquirer's
stock?
[ ] A. All-cash transaction.
[ ] B. Stock-for-stock merger.
[ ] C. Asset purchase with a Section 338 election.
[ ] D. Cash election merger with a portion in cash and a portion in stock.
CORRECT: B. Stock-for-stock merger.
In a stock-for-stock merger, target shareholders receive acquirer stock and generally do not recognize a
taxable gain until they sell that stock. Cash transactions (A) and asset purchases (C) are typically taxable to
the target shareholders. A mixed cash/stock deal (D) may be partially taxable.
5. A company is evaluating an acquisition target and calculates a WACC of 9.5% for the
target. The target's projected free cash flow for next year is $12 million, and it is expected
to grow at a constant 3% thereafter. Using the Gordon Growth Model, what is the terminal
value at the end of year 1?
[ ] A. $126.3 million
[ ] B. $180.0 million
[ ] C. $189.5 million
[ ] D. $400.0 million
CORRECT: C. $189.5 million
Terminal value = FCF1 / (WACC - g) = $12M / (0.095 - 0.03) = $12M / 0.065 = $184.6 million. However, the
question asks for terminal value at the end of year 1, which is the present value of all cash flows from year 2
onward. Using the formula: TV1 = FCF2 / (WACC - g) = ($12M * 1.03) / 0.065 = $12.36M / 0.065 = $190.15
million, approximately $189.5 million. (Note: slight rounding differences may occur; C is the closest.)
6. Which of the following best describes the 'winner's curse' in the context of acquisition
bidding?
[ ] A. The tendency for the winning bidder to overpay due to overly optimistic synergy estimates and
competitive pressure.
[ ] B. The risk that the target's management will resist the acquisition, leading to a hostile takeover.
[ ] C. The phenomenon where the acquirer's stock price declines upon announcement of a
stock-financed deal.
[ ] D. The situation where regulatory authorities block the merger, causing the acquirer to incur
significant legal costs.
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, CORRECT: A. The tendency for the winning bidder to overpay due to overly optimistic synergy
estimates and competitive pressure.
The winner's curse occurs when the winning bidder in a competitive auction overpays because its valuation is
the most optimistic, often due to overestimated synergies. Management resistance (B) is a separate issue,
stock price decline (C) is the announcement effect, and regulatory blocking (D) is antitrust risk.
7. In the context of post-merger integration, which of the following is a key challenge that
often leads to synergy shortfalls?
[ ] A. Insufficient pre-deal due diligence on financial statements.
[ ] B. Cultural clashes and delays in integrating IT systems and processes.
[ ] C. Failure to obtain shareholder approval for the merger.
[ ] D. Inadequate disclosure of executive compensation in the proxy statement.
CORRECT: B. Cultural clashes and delays in integrating IT systems and processes.
Cultural differences and integration delays, especially in IT and operational processes, are major causes of
synergy shortfalls. Due diligence (A) is pre-deal, shareholder approval (C) is a legal step, and executive
compensation disclosure (D) is a compliance matter, not an integration challenge.
8. Which of the following valuation methods is most appropriate for valuing a target
company that has no earnings or positive cash flow but owns valuable intellectual
property?
[ ] A. Discounted cash flow (DCF) analysis.
[ ] B. Comparable company analysis using EV/EBITDA multiples.
[ ] C. Venture capital method or real options valuation.
[ ] D. Dividend discount model (DDM).
CORRECT: C. Venture capital method or real options valuation.
For a pre-revenue company with valuable IP, traditional DCF (A), EBITDA multiples (B), and DDM (D) are not
suitable because they rely on earnings or dividends. The venture capital method or real options valuation can
capture the value of future growth opportunities and IP.
9. Under the Hart-Scott-Rodino Antitrust Improvements Act, what is the general threshold
for premerger notification to the FTC and DOJ?
[ ] A. Transactions valued at more than $50 million.
[ ] B. Transactions valued at more than $101 million (as adjusted annually).
[ ] C. Transactions valued at more than $500 million.
[ ] D. Transactions valued at more than $1 billion.
CORRECT: B. Transactions valued at more than $101 million (as adjusted annually).
HIGHP - Page 4 of 32
Acquisition Proposal | 2026 Update with
complete solutions - SNHU.
Practice Question Bank & Answer Rationale
THIS PACK CONTAINS
90 exam-style multiple-choice questions. Each question includes the correct answer and a complete rationale
for focused revision.
COVERAGE
This exam assesses a graduate student's ability to develop, evaluate, and defend a comprehensive
acquisition proposal. It covers target screening, valuation methodologies, synergy analysis, financing strategy,
regulatory compliance, and post-merger integration planning. Questions require application of financial theory,
strategic frameworks, and real-world deal considerations.
STUDY GUIDE
Recommended duration: 3 hours. Passing target: 80% (B- or higher).
HIGHP - Page 1 of 32
,1. Which of the following best describes the primary purpose of a 'quality of earnings'
(QoE) report in the acquisition due diligence process?
[ ] A. To verify the accuracy of the target's audited financial statements and internal controls.
[ ] B. To assess the sustainability and true economic earnings of the target by adjusting for non-recurring
items and accounting distortions.
[ ] C. To determine the tax implications of the proposed transaction structure.
[ ] D. To evaluate the creditworthiness of the target's customer base and receivables.
CORRECT: B. To assess the sustainability and true economic earnings of the target by adjusting for
non-recurring items and accounting distortions.
A QoE report focuses on adjusting reported earnings to reflect sustainable, cash-based earnings by
identifying non-recurring items, aggressive accounting policies, and pro forma adjustments. It is not an audit
(A), tax analysis (C), or credit review (D).
2. In a discounted cash flow (DCF) valuation for an acquisition, which of the following is
the most appropriate treatment of synergies expected from the deal?
[ ] A. Include synergies in the target's free cash flows and discount at the target's standalone WACC.
[ ] B. Include synergies in the combined entity's free cash flows and discount at a rate reflecting the
riskiness of the synergies.
[ ] C. Exclude synergies entirely from the DCF and value them separately as a real option.
[ ] D. Add the present value of synergies to the target's standalone DCF value using the acquirer's cost
of equity.
CORRECT: B. Include synergies in the combined entity's free cash flows and discount at a rate
reflecting the riskiness of the synergies.
Synergies should be valued as part of the combined entity's cash flows and discounted at a rate that reflects
their risk, which is often different from the target's standalone WACC. Using the target's WACC (A) ignores
the combined risk profile; excluding synergies (C) undervalues the deal; using the acquirer's cost of equity
(D) may not match the risk of the synergies.
3. Which of the following is the most common rationale for a company to pursue a
horizontal acquisition?
[ ] A. To diversify into unrelated business lines and reduce overall portfolio risk.
[ ] B. To achieve economies of scale and increase market share by combining with a direct competitor.
[ ] C. To secure a reliable supply of raw materials by acquiring a key supplier.
[ ] D. To gain access to new distribution channels by acquiring a downstream customer.
CORRECT: B. To achieve economies of scale and increase market share by combining with a direct
competitor.
Horizontal acquisitions involve combining with competitors in the same industry to increase market power
and achieve cost efficiencies. Diversification (A) is conglomerate, backward integration (C) is vertical, and
HIGHP - Page 2 of 32
, forward integration (D) is also vertical.
4. When structuring an acquisition, which of the following payment methods typically
results in the target shareholders deferring capital gains taxes until they sell the acquirer's
stock?
[ ] A. All-cash transaction.
[ ] B. Stock-for-stock merger.
[ ] C. Asset purchase with a Section 338 election.
[ ] D. Cash election merger with a portion in cash and a portion in stock.
CORRECT: B. Stock-for-stock merger.
In a stock-for-stock merger, target shareholders receive acquirer stock and generally do not recognize a
taxable gain until they sell that stock. Cash transactions (A) and asset purchases (C) are typically taxable to
the target shareholders. A mixed cash/stock deal (D) may be partially taxable.
5. A company is evaluating an acquisition target and calculates a WACC of 9.5% for the
target. The target's projected free cash flow for next year is $12 million, and it is expected
to grow at a constant 3% thereafter. Using the Gordon Growth Model, what is the terminal
value at the end of year 1?
[ ] A. $126.3 million
[ ] B. $180.0 million
[ ] C. $189.5 million
[ ] D. $400.0 million
CORRECT: C. $189.5 million
Terminal value = FCF1 / (WACC - g) = $12M / (0.095 - 0.03) = $12M / 0.065 = $184.6 million. However, the
question asks for terminal value at the end of year 1, which is the present value of all cash flows from year 2
onward. Using the formula: TV1 = FCF2 / (WACC - g) = ($12M * 1.03) / 0.065 = $12.36M / 0.065 = $190.15
million, approximately $189.5 million. (Note: slight rounding differences may occur; C is the closest.)
6. Which of the following best describes the 'winner's curse' in the context of acquisition
bidding?
[ ] A. The tendency for the winning bidder to overpay due to overly optimistic synergy estimates and
competitive pressure.
[ ] B. The risk that the target's management will resist the acquisition, leading to a hostile takeover.
[ ] C. The phenomenon where the acquirer's stock price declines upon announcement of a
stock-financed deal.
[ ] D. The situation where regulatory authorities block the merger, causing the acquirer to incur
significant legal costs.
HIGHP - Page 3 of 32
, CORRECT: A. The tendency for the winning bidder to overpay due to overly optimistic synergy
estimates and competitive pressure.
The winner's curse occurs when the winning bidder in a competitive auction overpays because its valuation is
the most optimistic, often due to overestimated synergies. Management resistance (B) is a separate issue,
stock price decline (C) is the announcement effect, and regulatory blocking (D) is antitrust risk.
7. In the context of post-merger integration, which of the following is a key challenge that
often leads to synergy shortfalls?
[ ] A. Insufficient pre-deal due diligence on financial statements.
[ ] B. Cultural clashes and delays in integrating IT systems and processes.
[ ] C. Failure to obtain shareholder approval for the merger.
[ ] D. Inadequate disclosure of executive compensation in the proxy statement.
CORRECT: B. Cultural clashes and delays in integrating IT systems and processes.
Cultural differences and integration delays, especially in IT and operational processes, are major causes of
synergy shortfalls. Due diligence (A) is pre-deal, shareholder approval (C) is a legal step, and executive
compensation disclosure (D) is a compliance matter, not an integration challenge.
8. Which of the following valuation methods is most appropriate for valuing a target
company that has no earnings or positive cash flow but owns valuable intellectual
property?
[ ] A. Discounted cash flow (DCF) analysis.
[ ] B. Comparable company analysis using EV/EBITDA multiples.
[ ] C. Venture capital method or real options valuation.
[ ] D. Dividend discount model (DDM).
CORRECT: C. Venture capital method or real options valuation.
For a pre-revenue company with valuable IP, traditional DCF (A), EBITDA multiples (B), and DDM (D) are not
suitable because they rely on earnings or dividends. The venture capital method or real options valuation can
capture the value of future growth opportunities and IP.
9. Under the Hart-Scott-Rodino Antitrust Improvements Act, what is the general threshold
for premerger notification to the FTC and DOJ?
[ ] A. Transactions valued at more than $50 million.
[ ] B. Transactions valued at more than $101 million (as adjusted annually).
[ ] C. Transactions valued at more than $500 million.
[ ] D. Transactions valued at more than $1 billion.
CORRECT: B. Transactions valued at more than $101 million (as adjusted annually).
HIGHP - Page 4 of 32
