Company A offers $30 per share to acquire Company B. Company’s B estimated value of equity is $50 million, it has debt of 5 million, and outstanding shares of 2 million. This will probably result in:

 

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no change in Company B’s stock price

 

 

a decrease in Company B’s stock price

 

 

an increase in Company A’s stock price

 

 

a decrease in Company A’s stock price

 

 

 

none of the above

 

 

 

 

 

 

Question 2

In a financial merger:

the merged companies combine operations

 

 

 

Equity is used to finance the merger

 

Debt is used to finance the merger

 

the merged companies do not combine operations

 

none of the above

 

 

 

 

 

 

Question 3

Delta Airlines and Northwest Airlines merged in 2008. This merger is an example of:

a vertical merger

 

 

a horizontal merger

 

 

 

a conglomerate merger

 

more information is needed to answer this question

 

none of the above

 

 

 

 

 

 

Question 4

Delta airlines acquired a refinery in Pennsylvania in 2012. This is an example of:

a vertical merger

 

a horizontal merger

 

a conglomerate mergermore information is needed to answer this question

 

none of the above

 

Question 5

Company A is interested in acquiring Company B. Estimated present value of Company B is $1 billion.

Company B has 50 million shares of stock outstanding and no debt. Company B’s book value is $22.50.

Without considering possible synergies, what is the maximum price per share that Company A should offer?

$16.25

 

 

$22.50

 

 

$20.00

 

$25.25

 

none of the above

 

 

 

 

 

 

 

Question 6

The December Treasury bond futures contract has a quoted price of 95’18 and the implied interest rate is 3.2% (semiannual). If annual interest rates go up by 1.00 percentage point, what is the value of one contract?

 

$85,504

 

$ 69,591

 

$76,939

 

$95,523

 

none of the above

 

 

 

 

 

 

Question 7

Two companies are evaluating a possible swap. Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%. If A issues floating-rate debt and B issues fixed-rate debt, and then they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A. Which of the following statements is correct?

 

The swap is advantageous to A, but not to B

 

 

The swap is advantageous to B, but not to A

 

The swap is advantageous to both A and B

 

The swap is not advantageous to either A or B

 

none of the above

 

 

 

 

 

 

Question 8

“The June Treasury bond futures contract has a quoted price of 102’12. Are current market interest rates higher or lower than the standardized rate on a futures contract?

higher, because the contract is selling at a discount

 

 

higher, because the contract is selling at a premium

 

lower, because the contract is selling at a premium

 

more information is required to answer this question

 

None of the above answers is correct

 

 

 

 

 

 

Question 9

The June Treasury bond futures contract has a quoted price of 102’12. What is the current value of one contract in dollars?

90,180

 

 

90,563

 

 

102,120

 

 

 

102,375

 

 

none of the above

 

 

 

 

Question 10

The June Treasury bond futures contract has a quoted price of 102’12. What is the implied annual interest rate?

5.80%

 

 

2.90%

 

5.85%

 

3.05%

 

none of the above

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