Question 1

Due diligence includes all of the following activities EXCEPT assessing
A) differences in firm cultures.
B) tax consequences of the acquisition.
C) the level of private synergy between the two firms.
D) financing for intended transaction.

Accepted Answer

Due diligence typically involves assessing differences in firm cultures, tax consequences, and financing for the intended transaction. However, private synergy between the two firms is not typically assessed during due diligence.

Question 2

A manager in your company is proposing the acquisition of Taylor Company, which has developed a new, innovative product instead of a strategy of developing new products in-house. All of the following arguments are correct EXCEPT
A) The acquisition of Taylor should be primarily for defensive rather than strategic reasons.
B) Research suggests that acquisition strategies are a common means of avoiding risky internal ventures.
C) The outcomes of acquisitions can be estimated more easily and accurately than the outcomes for an internal product development process.
D) Acquisitions could become a substitute for innovation within your firm.

Accepted Answer

The acquisition of Taylor should be for strategic reasons, such as gaining new technology or market share, rather than purely defensive reasons.

Question 3

Compared to internal product development, acquisitions allow
A) immediate access to innovations in mature product markets.
B) more accurate prediction of return on investment.
C) slower market entry.
D) more effective use of company core competencies.

Accepted Answer

The answer of Compared to internal product development, acquisitions allow
A)...

Question 4

Internal product development is often viewed as
A) carrying a high risk of failure.
B) the only reliable method of generating new products for the firm.
C) a quicker method of product launch than acquisition of another firm.
D) critical to the success of biotech and pharmaceutical firms.

Accepted Answer

Internal product development involves investing resources and time into creating a new product from scratch, without the guarantee of its success. There may be unpredictable market trends, technical difficulties, and other potential obstacles that could result in a failed product. Therefore, internal product development carries a high risk of failure.

Question 5

Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately _______ percent of innovations are imitated within four years after patents are obtained.
A) five
B) ten
C) sixty
D) twenty

Accepted Answer

Approximately sixty percent of innovations are imitated within four years after patents are obtained, making internal product development a high-risk activity.

Question 6

The factors that lead to poor long-term performance by acquisitions include all of the following EXCEPT firms
A) with insufficient diversification.
B) having too much debt.
C) being unable to achieve synergy.
D) growing too large.

Accepted Answer

Firms with insufficient diversification is not a factor that leads to poor long-term performance by acquisitions. In fact, acquiring a firm with a different product line or in a different industry can provide diversification benefits to the acquiring firm. The other factors listed (having too much debt, being unable to achieve synergy, and growing too large) can all negatively impact the long-term performance of an acquisition.

Question 7

Without effective due diligence the
A) acquiring firm is likely to overpay for an acquisition.
B) firm may miss its opportunity to buy a well-matched company.
C) acquisition may deteriorate into a hostile takeover, reducing the value creating potential of the action.
D) firm may be unable to act quickly and decisively in purchasing the target firm.

Accepted Answer

The answer of Without effective due diligence the
A) acquiring firm...

Question 8

When a firm is overly dependent on one or more products or markets, and the intensity of rivalry in that market is intense, the firm may wish to ____ by making an acquisition.
A) increase new product speed to market
B) broaden its competitive scope
C) increase its economies of scale
D) overcome entry barriers

Accepted Answer

By acquiring a company operating in a different industry or market segment, the firm can broaden its competitive scope, reducing its dependence on a single product or market and mitigating the effects of intense rivalry in that market.

Question 9

Pappelbon Enterprises recently acquired a chain of convenience stores offering both fuel and food. Pappelbon is now surprised and dismayed to find that the gas pumps have been poorly maintained and will need to be replaced at considerable expense. Each of the following statements accurately reflect this EXCEPT
A) Pappelbon did not fully evaluate the target.
B) Pappelbon overpaid.
C) Pappelbon's due diligence was not fully effective.
D) Pappelbon's management was overly focused on acquisitions.

Accepted Answer

The answer of Pappelbon Enterprises recently acquired a chain of...

Question 10

The fastest and easiest way for a firm to diversity its portfolio of businesses is through acquisition because
A) of barriers to entry in many industries.
B) it is difficult and time intensive for companies to develop products that differ from their current product line.
C) innovation in both the acquired and the acquiring firm is enhanced by the exchange of competencies resulting from acquisition.
D) unrelated acquisitions are usually uncomplicated because the acquired firm is allowed to continue to function independently as it did before acquisition.

Accepted Answer

Developing new products and businesses is a time-consuming and resource-intensive process. Acquisition allows firms to quickly add new businesses to their portfolio without having to start from scratch.

Question 11

Sales of watches among teenagers and 20-somethings are declining rapidly as this age group uses cellphones, iPods, and other devices to tell time. A company that specializes in selling inexpensive watches to this age group may wish to consider ____ in order to develop new products other than watches.
A) unrelated diversification.
B) backward integration.
C) forward integration.
D) horizontal acquisitions.

Accepted Answer

Unrelated diversification involves expanding into a completely different industry or product line. In this case, since sales of watches are declining among the target age group, it may be beneficial for the company to consider expanding into a different market or product line in order to stay relevant and continue to generate profits.

Question 12

Because acquisitions may become a substitute for innovation, Teva Pharmaceutical's acquisition of Cephalon should be driven by ___________ rather than _________________.
A) defensive reasons (to gain sales revenue in the short run); strategic reasons (cost and revenue strategies)
B) both strategic and defensive reasons; either one or the other
C) strategic reasons; defensive reasons
D) avoiding internal R&D expenditures; developing innovation capabilities

Accepted Answer

The statement suggests that acquisitions can become a substitute for innovation, implying that they may not necessarily promote innovation. Therefore, it would be best for Teva Pharmaceutical to drive its acquisition of Cephalon with strategic reasons rather than defensive reasons, which focus on gaining sales revenue in the short run. Strategic reasons would likely include long-term planning for growth and development, which could lead to innovation capabilities. Defensive reasons, on the other hand, may not necessarily lead to an increased focus on innovation. Option B is not specific enough, while options A and D are both partially true but not the best answer.

Question 13

The ____ phase is probably the single most important determinant of shareholder value creation in mergers and acquisitions.
A) pre-acquisition negotiations
B) pre-acquisition due diligence
C) post-acquisition integration
D) post-acquisition restructuring

Accepted Answer

Post-acquisition integration is the most important phase because it determines whether the acquisition will be successful or not. It involves the process of merging the two companies and ensuring that they work together efficiently and effectively. If the integration is successful, it can lead to significant synergies and enhanced shareholder value. However, if the integration is poorly managed, it can result in significant value destruction.

Question 14

Research shows that about ____ percent of mergers and acquisitions are successful.
A) 20
B) 40
C) 60
D) 80

Accepted Answer

The answer of Research shows that about ____ percent of...

Question 15

Problems associated with acquisitions include all of the following EXCEPT
A) Managers overly focused on acquisitions.
B) Integration difficulties.
C) Large or extraordinary debt.
D) Excessive time spent on the due diligence process.

Accepted Answer

Excessive time spent on the due diligence process is not usually considered a problem associated with acquisitions. In fact, due diligence is an essential part of the acquisition process to identify potential risks and issues before proceeding with the transaction. The other options, managers overly focused on acquisitions, integration difficulties, and large or extraordinary debt, are typically seen as potential problems that can arise during or after an acquisition.

Question 16

Which of the following is NOT one of the primary reasons many pharmaceutical firms use acquisitions as exemplified by Teva's frendly acquisition of Cephalon?
A) entering markets quickly.
B) overcoming the high costs of internal product development.
C) improving predictability of returns on investment.
D) extending patent rights on developed pharmaceuticals.

Accepted Answer

Extending patent rights on developed pharmaceuticals is not a primary reason for pharmaceutical firms to use acquisitions. The other options listed - entering markets quickly, overcoming high costs of internal product development, and improving predictability of returns on investment - are common reasons for pharmaceutical acquisitions.

Question 17

According to the Chapter 7 Strategic Focus, research suggests that emerging market firms tend to __________ than other firms and that government ownership of those firms leads to __________ for the acquisition.
A) pay a higher premium; overpayment
B) pay a lower premium; overpayment
C) pay a lower premium; underpayment
D) pay a higher premium; underpayment

Accepted Answer

Emerging market firms often pay a higher premium due to their eagerness to acquire strategic assets, and government ownership can lead to overpayment due to less emphasis on financial constraints.

Question 18

Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for
A) market discipline.
B) innovation.
C) risk analysis.
D) international diversification.

Accepted Answer

Acquiring new companies with innovative products can be a shortcut for a company to enter new markets instead of developing their own products. However, it can lead to a lack of innovation within the company and a dependence on acquisitions for growth. Therefore, acquiring companies should not be a complete substitute for innovation.

Question 19

Research has shown that the more ____, the greater is the probability that an acquisition will be successful.
A) related the acquired and acquiring firms are
B) diverse the resulting portfolio of competencies
C) disparate the corporate cultures
D) involved investment banking firms are in the due diligence process

Accepted Answer

Research has consistently shown that the more related the acquired and acquiring firms are, the greater is the probability that an acquisition will be successful. This is because the greater the similarity and overlap between the businesses, the more likely it is that synergies can be achieved through the combination of their resources and capabilities, resulting in increased efficiency and profitability. Therefore, choice A is the most appropriate.

Question 20

Each of the following is a rationale for acquisitions EXCEPT
A) achieving greater market power.
B) overcoming significant barriers to entry.
C) increasing speed of market entry.
D) positioning the firm for a tactical competitive move.

Accepted Answer

The answer of Each of the following is a rationale...

Quiz 7: Merger and Acquisition Strategies

Due diligence includes all of the following activities EXCEPT assessing

A manager in your company is proposing the acquisition of Taylor Company, which has developed a new, innovative product instead of a strategy of developing new products in-house. All of the following arguments are correct EXCEPT

Compared to internal product development, acquisitions allow

Internal product development is often viewed as

Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately _______ percent of innovations are imitated within four years after patents are obtained.

The factors that lead to poor long-term performance by acquisitions include all of the following EXCEPT firms

Without effective due diligence the

When a firm is overly dependent on one or more products or markets, and the intensity of rivalry in that market is intense, the firm may wish to ____ by making an acquisition.

The fastest and easiest way for a firm to diversity its portfolio of businesses is through acquisition because

Because acquisitions may become a substitute for innovation, Teva Pharmaceutical's acquisition of Cephalon should be driven by _ rather than _______.

The ____ phase is probably the single most important determinant of shareholder value creation in mergers and acquisitions.

Research shows that about ____ percent of mergers and acquisitions are successful.

Problems associated with acquisitions include all of the following EXCEPT

Which of the following is NOT one of the primary reasons many pharmaceutical firms use acquisitions as exemplified by Teva's frendly acquisition of Cephalon?

According to the Chapter 7 Strategic Focus, research suggests that emerging market firms tend to than other firms and that government ownership of those firms leads to for the acquisition.

Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for

Research has shown that the more ____, the greater is the probability that an acquisition will be successful.

Each of the following is a rationale for acquisitions EXCEPT