MODEL QUESTION PAPER

MERGERS AND ACQUISITIONS

SECTION A – 1 MARK

ANSWER ALL THE QUESTIONS

1. Why is external growth preferable to internal growth?

a. External growth is hassle free
b. External growth is less expensive mode for expansion
c. Internal growth involves a longer implementation period & entails greater
uncertainties .
d. External growth alone maximizes the wealth of shareholders

2. ____________is defined as combination of two or more companies into a single

company.
a. Takeover
b. Merger
c. Acquisition
d. None

3. Which future vision for an organization defines its purpose, where it is heading and what
it intends to do once it gets there?
a. Growth
b. Competition
c. Post merger planning process
d. Restructuring process

4. Post - merger process excludes:

a. Cultural integration
b. Retention of key people
c. Laying the groundwork for a successful integration
d. Capturing well defined sources of value as quickly and efficiently in possible.

5. What is the need of restructuring?

a. It is done as a part of routine process
b. It is done according to whims and fancies of the management.
c. To flatten organization so that it could encourage culture of initiatives and
innovations
d. It is compulsory for every firm at periodic intervals

6. What strategic choice a parent firm may take when one of its subsidiaries is growing
faster and carrying higher valuation than other business?
a. Divestitures
 b. Equity carve outs
c. Spin offs
d. Leveraged buyouts

7. Increase in financial return due to high debt and tax shield are main advantage of
a. LBO
b. MBO
c. MLPs
d. ESOPs

8. What is the initial process in merger, buyout or restructuring?

a. Valuation of the target company
b. Stock price movement of the target company
c. Market capitalization of the target company
d. Efficiency of the management of the target company

9. What aspects are ignored while valuing both the acquired company and the target
company?
a. The maximum price that should be paid to the shareholders of the merged company
b. The price justification with reference to the value of the asset.
c. The strength of the surviving company as reflected in the market price.
d. The capital structure of the merged entity

10. Which model determines the value of the firm based on the market price of the similar
business?
a. Absolute value model
b. Relative value model
c. KKR model
d. Peter Ducker’s model

11. The first, second and the third process of merger & acquisition are:
a. Strategic objective, strategic evaluation, financial evaluation
b. Strategic objective, financial evaluation, strategic evaluation
c. Strategic evaluation, strategic objective, financial evaluation
d. Strategic evaluation, financial evaluation, strategic objective

12. Integration of functional areas involve:

a. Cultural integration of policies , procedures & styles
b. Function integration of accounting , R & D, procurement
c. Emotional integration of personnel
d. Board of director's approval

13. One of the conditions in ______ is, the business of the transferor company is intended to
be carried on, after the amalgamation by the transferor company.
 a. Expansion
b. Merger
c. MBO
d. LBO

14. ICAI issued accounting standards for 'Accounting for Amalgamation' that came into
effect on ________ . Is this standard mandatory?
a. 1-4-1991, Yes it is mandatory
b. 1-4-1991, No it is not mandatory
c. 1-4-1995, Yes it is mandatory
d. 1-4-1995, No it is not mandatory

15. Corporate takeover in India are governed by :

a. SEBI (takeover) code
b. Listing agreement with stock exchange
c. SEBI (takeover) code & Listing agreement with stock exchange
d. Companies Act 1956

16. If the merger & takeover is done through negotiation with the consent of target
companies it is termed as:
a. Hostile takeover
b. Friendly takeover
c. Takeover bid
d. Hostile bid

17. Laws are enacted to discourage.

a. Oligopolistic corporate behavior
b. Monopolistic corporate behavior
c. Irrational corporate behavior
d. Unlawful corporate behavior

18. What regulation is not a part of mergers & acquisitions?

a. MRTP Act 1969
b. FEMA 1999
c. SEBI Regulation Act1956 and the SEBI Act 1992
d. SEBI ( issue and testing of debt securities / regulation 2008)

19. The scheme of merger / amalgamation is governed by the provision of

a. Section 390 & section 111 of companies Act 1956
b. Section 390 & Section 110 of companies Act 1956
c. Section 391 to 394 & Section 111 of companies Act 1956
d. Section 399& Section 111 of companies Act 1956

20. What is excluded in buy back routes?

a. From existing shareholders on proportionate basis
b. Open Market Operations
c. Takeover bid
d. Repurchase of share issued through employees share option

SECTION B- 2 MARKS

1. ______ is a process through which capital structure is changed, labour readjustment

is made, technology up gradation takes place etc.
a. Demerger
b. Acquisition
c. Merger
d. Restructuring

2. _______is the act of acquiring company effective control by one company over
assets or management of another company without any combination of companies.
a. Takeover
b. Acquisition
c. Merger
d. Restructuring

3. While planning for mergers and acquisitions, which type of visions are identified?
a. Growth & Evaluation of company capabilities
b. Growth & competition
c. Competition & expectation of stakeholder
d. Competition & organizational change.

4. Corporate strategy is concerned with:

a. Assessing pre-existing relationship if any between the firm and specific potential
partner.
b. Exploring all possibilities into specific of merger, joint venture, business alliance
and takeover.
c. The ways of optimizing the portfolios of businesses and how this portfolio can be
changed to serve the interest of stakeholders.
d. Integration of people and process post merger.

5. When is a merger said to be at a premium ? When the offer price is

a. Higher than the target firm's pre-merger market value
b. Lower than the target firm's pre-merger market value
c. Higher than the target firm's pre-merger book value
d. Lower than the target firm's pre-merger book value
6. What method is based on assessing the current cost of duplicating the properties or
constructing similar enterprise in design and material?
a. Cost basic valuation
b. Reproduction valuation
c. Substitution
d. Market value

7. What does authority & responsibility of integration planning process involve?

a. Communicating integration planning to all employees
b. Deciding the authority & responsibility relationship
c. Assessment of the gaps in the skills & competencies
d. Designing the new organization structure

8. Methods of Accounting for Amalgamations

a. The Pooling of Interest method and Payment Method
b. The purchase method and Lumpsum Method
c. Consideration method and purchase method
d. The pooling of interest method and the purchase method

9. What is the percentage of shareholding does the equity shareholders need to hold to
become the equity shareholders of the transferee company if the amalgamation is in
the nature of merger?
a. 100% of the face value
b. 90% of the face value
c. 90% of the market value
d. 90% of the average of face value & merged value

10. ____________is an offer to buy current shareholder's stock at a specified price,

often with the objective of gaining centers of the company
a. Hostile takeover
b. Tender offer
c. Defensive merger
d. Textual strategic

11. Different types of bid excluded:

a. Mandatory bid
b. Partial bid
c. Tender offer
d. Competitive bid
 SECTION C- 4 Marks

1. Match the Following

1. Petroleum exploration
2. Sale of petroleum products
to dealers / retailer
3. Merger of coal mining &
railway company
4. Joining of 2 or more companies
not related to each other
a. Forward vertical integration
b. Original company
c. Conglomerate merger
d. Backward integration
e. Merger- vertical combination

a. 1e,2b,3a,4c
b. 1d,2a,3e,4c
c. 1d,2b,3e,4a
d. 1e,2a,3e,4c

2. Match the following

a. Stage 1 : Corporate strategy
developments
b. Stage 2 : Organizing for
acquisition
c. Stage 3 : Deal structuring
negotiation
d. Stage 4 : Post acquisition
integration.
a. This stage involves an understanding of the
acquisition decision process is important
b. This stage assumes M & A process as a
project so as to set good team.
c. This stage aims at enhancing stakeholder's . And
wealth
d. This stage involves valuing target companies
& choice of advisers etc.

a. 1d, 2a, 3d, 5b

b. 1c, 2a, 3d, 4b
c. 1c, 2b, 3a, 5b
d. 1d, 2b, 3a, 4c

3. Match the following

1. It is a stock bonus which are required to invest a. Joint venture
primarily in the securities of the employer firm
2. It is a partnership in which two or more firms b. MLP
carry out a specific project in a selected
are of business
3. Several smaller partnerships were merged c. MBO
with partners receiving unit in exchange for
their partnership interest.
4. It is a form a corporate divergent by the d. Non leveraged ESOPs
way of going private through management's
purchase of all outstanding shares.
 e. LBO
a. 1e,2b,3a,4c
b. 1d,2a,3b,4c
c. 1d,2b,3a,4e
d. 1e,2a,3b,4c

4. Match the following

The following steps are involved in the financial evaluation of a merger
1. First step a. Project cash flows magnitudes and their timings
2. Second step b. Identify growth and profitability assumptions
3. Third step c. Estimate the cost of capital
4. Fourth step d. Estimate change in net working capital
e. Compute NPV for each scenario
a. 1a 2b, 3c, 4e
b. 1a, 2b, 3c, 4d
c. 1e, 2a, 3c, 4b
d. 1b, 2a, 3c, 4e

5. Match the following:

Strategic Interdependence and Autonomy
1. High need for organizational autonomy & a. Symbiosis
low need for strategic interdependence
2. High need for organizational autonomy & b. Absorption
high need for strategic interdependence
3. Low need for organizational autonomy & c. Preservation
low need for strategic interdependence
4. Low need for organizational autonomy & d. Holding company
high need for strategic interdependence

a. 1d, 2b, 3a, 4c

b. 1c, 2a, 3d, 4b
c. 1d, 2a, 3b, 4c
d. 1c, 2b, 3a, 4c

6. Match the following:

1. Methods of accounting for a. Paragraph 3(a)
Amalgamation
2. Amalgamation is the nature b. Pooling of interest method & the
of merger is listed in purchase method.
3. Amalgamation as purchase c. Purchase method
Of asset
4. The difference between purchase d. paragraph 3(e)
consideration and value of assets
 is adjusted in general reserve.
e. Pooling method
a. 1b, 2d, 3c, 4e
b. 1b, 2a, 3e, 4c
c. 1b, 2a, 3c, 4e
d. 1b, 2d, 3e, 4c

7. Match the following:

1. Poison pill a. The target company sells a block of its stock to a third

party it considers to be friendly .

2. White knights b. The precious asset of the company is sold off

3. While square c. Management of the target company offers to be acquired

by a friendly company to escape from a hostile takeover.

4. Crown Jewel d. It represents the creation of securities carrying special

rights exercisable by a triggering event

a. 1d, 2c, 3a, 4b

b. 1c, 2d, 3a, 4b
c. 1d, 2c, 3b, 4a
d. 1c, 2d, 3b, 4a