Mergers Acquisitions and Corporate Restructurings 6th Edition by Patrick A. Gaughan – Test Bank

Mergers Acquisitions and Corporate Restructurings 6th Edition by Patrick A. Gaughan – Test Bank

Questions: Chapter 8 – Going-Private Transactions and Leveraged Buyouts

1. Which of the following is true of senior debt?
a. The rate on senior debt is 2% to 3% above prime
b. Senior debt is usually about a quarter to a third of total LBO debt
c. The term is usually 5 to 10 years
d. All of the above

2. Vertical strips:
a. Refers to acquiring targets with whom the bidder has backward relationship
b. Refers to acquiring targets with whom the bidder has forward relationship
c. Refers to participating in several layers of LBO financing
d. None of the above

3. Which of the following are desirable characteristics for LBO candidates?
a. Stable cash flows
b. Unused debt capacity
c. Ability to cut costs
d. All of the above
e. None of the above

4. Which of the following firms were or are considered “LBO firms”?
a. KKR
b. Forstmann Little
c. Blackstone Group
d. All of the above
e. None of the above

5. Research shows that audit fees constitute what percent of total costs of being public?
a. 25% to 35%
b. Approximately 90%
c. 50% to 60%
d. Roughly one third

6. In Revlon v. McAndrews and Forbes Holdings, the court held:
a. The bidding process was unfair
b. Pantry Pride’s premium was not high enough
c. Forstmann Little’s bid was appropriate
d. All of the above

7. In Hansen Trust v. SCM the court concluded:
a. Merrill Lynch was given favorable treatment
b. Use of lockup option was inappropriate
c. An appropriate auction was preempted
d. All of the above
e. None of the above

8. In his study of buyouts in the 1980s, Kaplan found post-buyout CEO ownership percentages:
a. Fell
b. Rose
c. No consistent pattern
d. None of the above

9. Research by Cao and also data from Mergerstat showed that:
a. LBO premiums were less than M&A premiums but increased over time
b. Decreased over time
c. No discernable pattern
d. None of the above

10. Kaplan found that the tax benefits in LBOs were:
a. Predictable
b. Built into the takeover premium
c. Did not affect the premium
d. Both a and c
e. Both a and b