Chapter 11 Practice Questions
1. Highly Saleable Corp. has decided to put itself up for sale and has retained an investment bank to assist with the sale process. Highly Saleable and the investment bank negotiate an engagement letter. The engagement letter is least likely to include which of the following terms?
A. Length of the engagement
B. Total dollar amount the investment bank will earn as a fee
C. Scope of the engagement
D. Conditions under which either party may terminate the engagement
2. Overly Complex Corp. decides to divest itself of its Mid-Sized Siliconized Widgets division. The division will become an independent corporation, and its shares will be distributed to the shareholders of Overly Complex on a proportional basis. The proposed transaction is best described as a:
A. Split-off
B. Cash-out
C. Spin-off
D. Run-off
3. Assuming that a buyer intends to acquire essentially an entire company rather than a certain portion, which of the following types of transactions do not normally require a vote by the seller’s shareholders?
A. Tender offer
B. Asset purchase
C. Traditional stock purchase
D. Merger of equals
4. Which of the following is true of a tax-free reorganization?
I. Stock of the buyer must comprise a significant portion of the consideration
II. Qualifying transactions are tax-exempt for a minimum of 10 years
III. The purchased company or assets must be liquidated within one year
IV. The cash portion of the consideration is taxable to the seller
A. I and IV
B. I and III
C. II and IV
D. II and III
5. A large payment made to a corporate executive upon a change in control of the corporation is known as:
A. A gilded ticket
B. A golden parachute
C. Golden handcuffs
D. Diamond cufflinks
6. In a merger or acquisition, which of the following is most likely to be a goal of the buyer but not of the seller?
A. Obtaining a stepped-up basis
B. Avoiding double taxat