Which of the following is generally not considered a source of value to the acquiring firm?
A. Duplicate facilities
B. Patents
C. Land on the balance sheet at below market value
D. Warranty claims
E. Copyrights
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Target is a wholly owned subsidiary of MegaCorp Inc. MegaCorp supplies a number of services to target. Target sells some of its products to other MegaCorp subsidiaries. Target also buys products from other MegaCorp subsidiaries that are used as inputs in producing Target’s products. Which of the following adjustments should the acquirer make to Target’s financial statements before valuing the firm?
A. Deduct the actual cost of services required by Target that are being supplied by the parent without charge from target’s cost of sales.
B. Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at below market prices and the actual market prices for such products from Target's cost of sales.
C. Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at above market prices and the actual cost of such products if purchased from other sources from Target's cost of sales
D. A and B only.
E. None of the above.
Which of the following is not true about common size financial statements?
A. Such statements are used to uncover data irregularities.
B. Such statements are constructed by calculating the percentage each line item of the income statement, balance sheet, and cash flow statement is of annual sales.
C. Such statements are useful for comparing businesses of different sizes in the same industry at different moments in time.
D. Common size statements applied over a number of consecutive periods may be used to determine if the target firm is deferring necessary spending.
E. Common size statements may be calculated for both quarterly and annual financial data.
Which of the following is not true about generally accepted accounting principles (GAAP)?
A. GAAP provide specific guidelines as to how to account for specific events impacting the financial performance of the firm.
B. The scrupulous application GAAP accounting rules does ensure consistency in comparing one firm’s financial performance to another.
C. It is customary for definitive agreements of purchase and sale to require that a target company represent that its financial books are kept in accordance with GAAP.
D. GAAP guarantees that a firm’s financial books are accurate.
E. Differences between how a firm records actual financial transactions and how they should be recorded based on GAAP may indicate fraud or mismanagement.
Which of the following is not typically true of LBOs?
A. Managers are generally also owners
B. Most employees are given the opportunity to participate in profit sharing plans
C. The focus tends to be on improving operational efficiency though cost cutting and improving productivity
D. R&D budgets following the creation of the LBO are always increased significantly
E. All of the above
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