Question

Which of the following statements is most correct?

a. If a company which produces military equipment merges with a company which manages a chain of motels, this is an example of a horizontal merger.

b. If a company which produces gasoline and oil products merges with a company which manages a chain of gas stations, this is an example of a vertical merger.

c. If a company buys a firm that is not in the same industry, this is an example of efficient diversification.

d. If a manufacturing company merges with a retail firm, this is an example of monopolistic combination.

e. If a manager opposes a merger, this is always considered to be an example of selfish, but not illegal behavior.

Which of the following statements is most correct?

a.Leveraged buyouts (LBOs) are where a firm issues equity and uses the proceeds to take a firm public.

b. In a typical LBO, bondholders do well but shareholders realize a decline in value.

c. Firms are unable to sell any assets in the first five years following a leverage buyout.

d. LBOs are no longer available due to an SEC regulation passed in 1996.

e. LBOs occur when an acquirer borrows against the target’s assets to buyout the targets equity holders.

Answer 1

1. If the company buys a firm that is not in the same industry, it will be providing them with efficient diversification benefit because it will be getting diversified into another industry as well.

All the other statements in relation to horizontal and vertical merger are false.

Correct answer will be option (C).

2. leveraged buyouts are generally occouring when the acquirer will be borrowing against the target asset to buyout the target equityholders and this will be helpful in use of debt capital to buyout company.

All the other options are false.

Correct answer will be option (E) leveraged buyout occur when the acquirer borrows against the Asset of the target company to buy out the target equity holder.