Question 1

Cross-border acquisitions are critical to U.S. firms competing internationally:
A) if they are to develop differentiated products for markets served.
B) when market share growth is the focus.
C) where consolidated operations are beneficial.
D) if they wish to overcome entry barriers to international markets.

Accepted Answer

Cross-border acquisitions can help U.S. firms overcome entry barriers to international markets which may include regulations, trade barriers, or local competition. By acquiring a local company, the U.S. firm can gain access to established distribution channels, customer relationships, and local knowledge that can help them navigate the complexities of foreign markets. This can be particularly important when the focus is on expanding into emerging markets where local expertise and relationships are crucial.

Question 2

Currently, the rationale for making an acquisition includes each of the following EXCEPT:
A) to increase market power.
B) to decrease taxes paid by shareholders.
C) to overcome entry barriers.
D) to increase diversification.

Accepted Answer

Although tax benefits may be a potential outcome of an acquisition, it is not a primary rationale for making an acquisition. Rather, the primary rationales include increasing market power, overcoming entry barriers, and increasing diversification to enhance competitiveness and profitability.

Question 3

SpeakEasy, a U.S. software company that specializes in voice-recognition software, wishes to rapidly enter the growing technical translation software market. This market is dominated by firms making highly differentiated products. To enter this market, SpeakEasy would be best served if it considers a(an):
A) vertical acquisition of a firm that uses technical translation products.
B) acquisition of a highly related firm in the technical translation market.
C) cross-border merger, preferably with an Indian or Chinese company.
D) strategy of internally developing the technical translation products needed to compete in this market.

Accepted Answer

To rapidly enter a market dominated by firms with highly differentiated products, SpeakEasy would benefit from acquiring a highly related firm in the technical translation market. This would allow them to leverage the expertise and established network of the acquired firm, while also gaining access to their differentiated products and customer base. This would be a faster and more efficient strategy than developing the products internally or entering a cross-border merger that may not provide the same level of synergy. A vertical acquisition may also be an option, but it would require more resources and a larger integration process.

Question 4

When the target firm does not solicit the acquiring firm's bid, it is referred to as a(n):
A) stealth raid.
B) adversarial acquisition.
C) takeover or unfriendly acquisition.
D) leveraged buyout.

Accepted Answer

When the target firm does not solicit the acquiring firm's bid, it is referred to as a takeover or an unfriendly acquisition. This is because the acquirer is making an offer without the target firm's approval or willingness to sell. This is in contrast to a friendly acquisition where the acquirer and target firms have mutually agreed to the terms of the deal. The other options are not applicable in this case as a stealth raid refers to a secretive attempt to acquire a company, an adversarial acquisition implies a hostile approach towards the target, and a leveraged buyout refers to a specific type of acquisition where the acquiring firm uses a significant amount of debt to finance the transaction.

Question 5

The presence of barriers to entry in a particular market will generally make acquisitions ____ as an entry strategy.
A) less likely
B) more likely
C) prohibitive
D) illegal

Accepted Answer

Acquisitions become more likely when barriers to entry exist in a market, as these barriers make it difficult for new competitors to enter the market and establish a foothold. By acquiring an existing firm with an established presence in the market, a new entrant can bypass these barriers and immediately establish a position in the market.

Question 6

Market power is derived primarily from the:
A) core competencies of the firm.
B) size of a firm and its resources and capabilities.
C) quality of a firm's top management team.
D) depth of a firm's strategy.

Accepted Answer

Market power is the ability of a firm to affect the price and quantity of a product in the market. This ability is largely derived from the size of the firm, its resources, and capabilities. A larger firm with more resources and capabilities can typically exert greater control over the market than a smaller firm. Core competencies, quality of top management, and depth of strategy can all contribute to a firm's market power, but they are not the primary factors.

Question 7

There are few true mergers because:
A) few firms have complementary resources.
B) integration problems are more severe than in outright acquisitions.
C) one firm usually dominates in terms of market share, size, or value of assets.
D) of managerial resistance. True mergers result in significant managerial-level layoffs.

Accepted Answer

One firm dominating in terms of market share, size, or value of assets is a common reason for there being few true mergers. In most cases, one firm is acquired by another, rather than two companies merging on an equal basis.

Question 8

Horizontal, vertical, and related acquisitions to build market power:
A) are likely to undergo regulatory review and analysis by financial markets.
B) are rarely permitted to occur across international borders.
C) typically involve a firm purchasing one of its suppliers or distributors.
D) concentrate on capturing value at more than one stage in the value chain.

Accepted Answer

Horizontal, vertical, and related acquisitions can significantly impact market competition and are therefore subject to regulatory review to ensure they do not create monopolies or reduce competition.

Question 9

Cross-border acquisitions are primarily made to:
A) reshape the firm's competitive scope.
B) reduce the cost of new product development.
C) take advantage of higher education levels of labor in developed countries.
D) overcome barriers to entry in another country.

Accepted Answer

The answer of Cross-border acquisitions are primarily made to:
A) reshape...

Question 10

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

Acquisitions are typically pursued for strategic reasons, such as gaining new technology or market access, rather than primarily for defensive reasons.

Question 11

A primary reason for a firm to pursue an acquisition is to:
A) avoid increased government regulation.
B) achieve greater market power.
C) exit a hyper-competitive market.
D) achieve greater financial returns in the short run.

Accepted Answer

One of the main reasons for a firm to pursue an acquisition is to achieve greater market power, which can come in the form of increased market share, access to new geographic regions or customer bases, and the ability to control prices or reduce competition. This can ultimately lead to increased profits and financial returns in the long run, but the initial motivation is usually to gain a competitive advantage. The other answer choices are not consistent with the typical rationale for pursuing an acquisition.

Question 12

The acquisition of Sun Microsystems (a computer hardware producer) by Oracle Corporation (a software firm) is an example of a(n):
A) vertical acquisition.
B) unrelated acquisition.
C) horizontal acquisition.
D) merger of equals.

Accepted Answer

The answer of The acquisition of Sun Microsystems (a computer...

Question 13

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 significant investment in research and development, which comes with a high risk of failure. Innovation is crucial to remain competitive, but it is not a guaranteed success, hence internal product development carries a high degree of risk.

Question 14

Manny Inc. recently completed the purchase of its primary supplier. Manny intends to begin expanding the market to which the suppliers' products are sold. This purchase is a(n):
A) merger.
B) unrelated acquisition.
C) horizontal acquisition.
D) vertical acquisition.

Accepted Answer

Manny Inc.'s purchase of its primary supplier is a vertical acquisition since it is acquiring a supplier in its supply chain. Furthermore, Manny Inc. plans to expand the market to which the supplier's products are sold, which is a clear indication of vertical integration.

Question 15

A(n) ____ occurs when one firm buys a controlling, or 100 percent interest, in another firm.
A) merger
B) acquisition
C) spin-off
D) restructuring

Accepted Answer

An acquisition occurs when one firm buys a controlling interest in another firm. A merger involves the combination of two or more firms into a new entity, a spin-off involves creating a new and separate company from an existing business, and restructuring involves making significant changes to a company's organizational structure or operations.

Question 16

Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately _______ percent of innovations are imitated within 4 years after patents are obtained.
A) 5
B) 10
C) 60
D) 20

Accepted Answer

Approximately 60 percent of innovations are imitated within 4 years after patents are obtained, making internal product development a high-risk activity.

Question 17

When a firm acquires its supplier, it is engaging in a(n):
A) merger.
B) unrelated acquisition.
C) hostile takeover.
D) vertical acquisition.

Accepted Answer

When a firm acquires its supplier, it is engaging in a vertical acquisition. Vertical acquisitions occur when a company buys a supplier or a distributor to control its supply chain.

Question 18

Baby Doe's, a designer and manufacturer of children's clothing, has decided to purchase a retail chain specializing in children's clothing. This purchase is a(n):
A) merger.
B) unrelated acquisition.
C) horizontal acquisition.
D) vertical acquisition.

Accepted Answer

The purchase of a retail chain specializing in children's clothing by Baby Doe's, a designer and manufacturer of children's clothing, is a vertical acquisition as they are acquiring a company in a different stage of the supply chain.

Question 19

In a merger:
A) one firm buys controlling interest in another firm.
B) two firms agree to integrate their operations on a relatively coequal basis.
C) two firms combine to create a third separate entity.
D) one firm breaks into two firms.

Accepted Answer

The answer of In a merger:
A) one firm buys controlling...

Question 20

The announcement that P&G was acquiring premium dog and cat food manufacturer Iams was a _________ acquisition and is intended to ________.
A) vertical; increase diversification
B) horizontal; increase market power
C) vertical; overcome entry barriers
D) related; increase speed to market

Accepted Answer

The answer of The announcement that P&G was acquiring premium...

Quiz 7: Merger and Acquisition Strategies

Cross-border acquisitions are critical to U.S. firms competing internationally:

Currently, the rationale for making an acquisition includes each of the following EXCEPT:

When the target firm does not solicit the acquiring firm's bid, it is referred to as a(n) :

The presence of barriers to entry in a particular market will generally make acquisitions ____ as an entry strategy.

Market power is derived primarily from the:

There are few true mergers because:

Horizontal, vertical, and related acquisitions to build market power:

Cross-border acquisitions are primarily made to:

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 primary reason for a firm to pursue an acquisition is to:

The acquisition of Sun Microsystems (a computer hardware producer) by Oracle Corporation (a software firm) is an example of a(n) :

Internal product development is often viewed as:

Manny Inc. recently completed the purchase of its primary supplier. Manny intends to begin expanding the market to which the suppliers' products are sold. This purchase is a(n) :

A(n) ____ occurs when one firm buys a controlling, or 100 percent interest, in another firm.

Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately _______ percent of innovations are imitated within 4 years after patents are obtained.

When a firm acquires its supplier, it is engaging in a(n) :

Baby Doe's, a designer and manufacturer of children's clothing, has decided to purchase a retail chain specializing in children's clothing. This purchase is a(n) :

In a merger:

The announcement that P&G was acquiring premium dog and cat food manufacturer Iams was a _ acquisition and is intended to .