Amity Campus

Uttar Pradesh
India 201303

ASSIGNMENTS
PROGRAM: MFC
SEMESTER-IV
Subject Name
Study COUNTRY
Roll Number (Reg.No.)
Student Name

: MERGERS AND ACQUISITIONS

: BOTSWANA
: MFC001112014-20160175
: MPHO PELOEWETSE TAU

INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C

DETAILS
Five Subjective Questions
Three Subjective Questions + Case Study
Objective or one line Questions

MARKS
10
10
10

b)
c)
d)
e)

Total weightage given to these assignments is 30%. OR 30 Marks

All assignments are to be completed as typed in word/pdf.
All questions are required to be attempted.
All the three assignments are to be completed by due dates and need to be
submitted for evaluation by Amity University.
f) The students have to attached a scan signature in the form.

Signature :
Date
:

_________________________________
_________________________________

( ) Tick mark in front of the assignments submitted

Assignment
Assignment B
Assignment C
A

MERGER & ACQUISITION

ASSIGNMENT- A
Attempt these five analytical questions
Q.1 Mention the Difference between - Leverage Buy out, Venture capital & growth fund?
Leveraged Buyouts (LBO)
This private equity approach is associated with the use of high levels of debt financing to obtain
a controlling share in an existing publicly traded company. The acquirer would have strong
reasons to believe that it can unlock value trapped in the target firm.
Some LBO investment characteristics:

Consistent cash flows.

Large company asset base.
Heavily leveraged.
Products and markets are usually well established.
Low working capital needs.
Veteran management team.
Focus on profit growth.
Restructure to reduce costs.
The risk/reward tradeoff is more easily measured than VC.
The general partner will receive carried interest, transaction fees, and monitoring fees.
Venture Capital (VC)

This private equity approach is associated with providing funding to new companies with high
growth potential, often in new and/or high tech industries.
Some VC investment characteristics:

Unpredictable cash flows.

Low company asset base.
Low leverage, primarily equity financed.
Products and market are often new and not yet established.
High working capital needs.
Unseasoned management team.
Focus on revenue growth.

The risk/reward tradeoff can be difficult to assess, but a private equity fund typically
generates most of its returns from a small number of big successes.
The general partner typically gets carried interest.
The exit timing can be difficult to know

A mutual fund whose aim is to achieve capital appreciation by investing in growth stocks. They
focus on companies that are experiencing significant earnings or revenue growth, rather than
companies that pay out dividends. The hope is that these rapidly growing companies will
continue to increase in value, thereby allowing the fund to reap the benefits of large capital gains.
In general, growth funds are more volatile than other types of funds, rising more than other funds
in bull markets and falling more in bear markets
Q.2 what do you mean by corporate control? Explain the how shares buy back work out?
Corporate control" refers to the authority to make the decisions of a corporation regarding
operations and strategic planning, including capital allocations, acquisitions and divestments, top
personnel decisions, and major marketing, production, and financial decisions. This concept is
frequently applied to publicly traded companies, which may be susceptible to changes in
corporate control when large investors or other companies seek to wrest control from managers
or other shareholders.
The notion of corporate control is similar to that of corporate governance; however, it is usually
used in a narrower sense. Corporate control is concerned with who hasand, moreover, who
exercisesthe ultimate authority over significant corporate practices. Governance, by contrast,
involves the broader inter workings of the day-to-day management, the board of directors, the
shareholders at large, and other interested parties to formulate and implement corporate strategy.
Q.3 Write notes on the following:A) Split off.
B) Amalgamation.
Amalgamation is the combination of one or more companies into a new entity. An amalgamation
is distinct from a merger because neither of the combining companies survives as a legal entity.
Rather, a completely new entity is formed to house the combined assets and liabilities of both
companies.
C) Hostile Takeover Bid.
A hostile takeover is the acquisition of one company (called the target company) by another
(called the acquirer) that is accomplished not by coming to an agreement with the target
company's management, but by going directly to the company's shareholders or fighting to
replace management in order to get the acquisition approved. A hostile takeover can be

accomplished through either a tender offer or a proxy fight.

Q.4 Explain the Net Asset Value method of valuation of firm?

The total value of the assets of a company less its liabilities total value is the net asset value. For
the purpose of valuation, the usual thing to do is to divide the net assets by number of shares to
get the net assets per share. This is the asset value which belongs to each share in the same way
the price-earning ratio measures the profit per share.
Net asset value is useful for shares valuation in sectors where the company value come from the
held assets rather than the stream of profit that was generated by the company business. The
examples are property companies and investment trusts. Both are convenient ways wherein the
investors can buy diversified bundles of the assets they hold.
The assets value can be obtained at book value or market prices and used depending on the
circumstances and the sector. Some assets need to be excluded. One example of this is the
tangible book value of NAV.
The net asset value of open ended investment companies (OEIC), investment trust, or unit trust is
calculated with the use of the assets market value. The value of assets is changing daily
therefore, the net asset value is also changing daily. For the funds, it is common to publish and
calculate the net asset value per share daily

Q.5 Mention the types of merge & acquisition?

Horizontal Mergers
Horizontal mergers happen when a company merges or takes over another company that offers
the same or similar product lines and services to the final consumers, which means that it is in
the same industry and at the same stage of production. Companies, in this case, are usually direct
competitors. For example, if a company producing cell phones merges with another company in
the industry that produces cell phones, this would be termed as horizontal merger. The benefit of
this kind of merger is that it eliminates competition, which helps the company to increase its
market share, revenues and profits. Moreover, it also offers economies of scale due to increase in
size as average cost decline due to higher production volume. These kinds of merger also
encourage cost efficiency, since redundant and wasteful activities are removed from the
operations i.e. various administrative departments or departments suchs as advertising,
purchasing and marketing.

Vertical Mergers

A vertical merger is done with an aim to combine two companies that are in the same value chain
of producing the same good and service, but the only difference is the stage of production at
which they are operating. For example, if a clothing store takes over a textile factory, this would
be termed as vertical merger, since the industry is same, i.e. clothing, but the stage of production
is different: one firm is works in territory sector, while the other works in secondary sector.
These kinds of merger are usually undertaken to secure supply of essential goods, and avoid
disruption in supply, since in the case of our example, the clothing store would be rest assured
that clothes will be provided by the textile factory. It is also done to restrict supply to
competitors, hence a greater market share, revenues and profits. Vertical mergers also offer cost
saving and a higher margin of profit, since manufacturers share is eliminated.

Concentric Mergers
Concentric mergers take place between firms that serve the same customers in a particular
industry, but they dont offer the same products and services. Their products may be
complements, product which go together, but technically not the same products. For example, if
a company that produces DVDs mergers with a company that produces DVD players, this would
be termed as concentric merger, since DVD players and DVDs are complements products, which
are usually purchased together. These are usually undertaken to facilitate consumers, since it
would be easier to sell these products together. Also, this would help the company diversify,
hence higher profits. Selling one of the products will also encourage the sale of the other, hence
more revenues for the company if it manages to increase the sale of one of its product. This
would enable business to offer one-stop shopping, and therefore, convenience for consumers.
The two companies in this case are associated in some way or the other. Usually they have the
production process, business markets or the basic technology in common. It also includes
extension of certain product lines. These kinds of mergers offer opportunities for businesses to
venture into other areas of the industry reduce risk and provide access to resources and markets
unavailable previously.

Conglomerate Merger
When two companies that operates in completely different industry, regardless of the stage of
production, a merger between both companies is known as conglomerate merger. This is usually
done to diversify into other industries, which helps reduce risks.

Q.6 what are the advantage of disinvestment in the Public Sector Units?

Advantages
1.To achieve greater inflow of private capital
E.g. This revenue can be used to compensate the deficit finance.

2. Allows new firms to enter into the market and thus increases competition
3. Brings the low productivity PSUs back on track thereby improving the quality of goods,
eliminating excessive manpower utilization and enabling high profits.

Assignment B
Q.7 Explain the Discounted Cash Flow method in details, with the help of suitable
example?
A discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an
investment opportunity. DCF analysis uses future free cash flow projections and discounts them
to arrive at a present value estimate, which is used to evaluate the potential for investment. If the
value arrived at through DCF analysis is higher than the current cost of the investment, the
opportunity may be a good one.
Calculated as:

DCF is also known as the Discounted Cash Flows Model.

There are several variations when it comes to assigning values to cash flows and the discount
rate in a DCF analysis. But while the calculations involved are complex, the purpose of DCF
analysis is simply to estimate the money an investor would receive from an investment, adjusted
for the time value of money.
The time value of money is the assumption that a dollar today is worth more than a dollar
tomorrow. For example, assuming 5% annual interest, $1.00 in a savings account will be worth
$1.05 in a year. Due to the symmetric property (if a=b, then b=a), we must consider $1.05 a year
from now to be worth $1.00 today. When it comes to assessing the future value of investments, it
is common to use the weighted average cost of capital (WACC) as the discount rate.
For a hypothetical Company X, we would apply DCF analysis by first estimating the firm's
future cash flow growth. We would start by determining the company's trailing twelve month
(ttm) free cash flow (FCF), equal to that period's operating cash flow minus capital expenditures.
Say that Company X's ttm FCF is $50 m. We would compare this figure to previous years' cash
flows in order to estimate a rate of growth. It is also important to consider the source of this
growth. Are sales increasing? Are costs declining? These factors will inform assessments of the
growth rate's sustainability.

Say that you estimate that Company X's cash flow will grow by 10% in the first two years, then
5% in the following three. After a few years, you may apply a long-term cash flow growth rate,
representing an assumption of annual growth from that point on. This value should probably not
exceed the long-term growth prospects of the overall economy by too much; we will say that
Company X's is 3%. You will then calculate a WACC; say it comes out to 8%. The terminal
value, or long-term valuation the company's growth approaches, is calculated using the Gordon
Growth Model:
Terminal value = projected cash flow for final year (1 + long-term growth rate) / (discount rate long-term growth rate)
Now you can estimate the cash flow for each period, including the the terminal value:
Year 1

= 50 * 1.10

55

Year 2

= 55 * 1.10

60.5

Year 3

= 60.5 * 1.05

63.53

Year 4

= 63.53 * 1.05

66.70

Year 5

= 66.70 * 1.05

70.04

Terminal value

= 70.04 (1.03) / (0.08 - 0.03)

1,442.75

Finally, to calculate Company X's discounted cash flow, you add each of these projected cash
flows, adjusting them for present value using the WACC:
DCFCompany X = (55 / 1.081) + (60.5 / 1.082) + (63.53 / 1.083) + (66.70 / 1.084) + (70.04 / 1.085) +
(1,442.75 / 1.085) = 1231.83
$1.23 b is our estimate of Company X's present enterprise value. If the company has net debt,
this needs to be subtracted, as equity holders' claims to a company's assets are subordinate to
bondholders'. The result is an estimate of the company's fair equity value. If we divide that by the
number of shares outstandingsay 10 mwe have a fair equity value per share of $123.18,
which we can compare with the market price of the stock. If our estimate is higher than the
current stock price, we might consider Company X a good investment.
Discounted cash flow models are powerful, but they are only as good as their imports. As the
axiom goes, "garbage in, garbage out". Small changes in inputs can result in large changes in the
estimated value of a company, and every assumption has the potential to erode the estimate's
accuracy
Q.8 what do you mean by Leverage Buy out (LBO)? How Leverage Buy Out deals take
place?
A leveraged buyout (LBO) is the acquisition of another company using a significant amount of
borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the

company being acquired are used as collateral for the loans in addition to the assets of the
acquiring company. The purpose of leveraged buyouts is to allow companies to make large
acquisitions without having to commit a lot of capital.
In an LBO, there is usually a ratio of 90% debt to 10% equity. Because of this high debt/equity
ratio, the bonds usually are not investment grade and are referred to as junk bonds. Leveraged
buyouts have had a notorious history, especially in the 1980s when several prominent buyouts
led to the eventual bankruptcy of the acquired companies. This was mainly due to the fact that
the leverage ratio was nearly 100% and the interest payments were so large that the company's
operating cash flows were unable to meet the obligation.
One of the largest LBOs on record was the acquisition of HCA Inc. in 2006 by Kohlberg Kravis
Roberts & Co. (KKR), Bain & Co., and Merrill Lynch. The three companies paid around $33
billion for the acquisition.
It can be considered ironic that a company's success (in the form of assets on the balance sheet)
can be used against it as collateral by a hostile company that acquires it. For this reason, some
regard LBOs as an especially ruthless, predatory tactic.
Some leveraged buyouts occur in companies experiencing hard times and potentially facing
bankruptcy, or they may be part of an overall plan. Not all LBOs are regarded as predatory.

Q.9 what are the reason of Merger & Acquisition?

Remove Excess capacity
In many cases, as industries grow, there comes a point of maturity, which leads to excess
capacity in the industry. As more and more companies enter the industries, the supply continues
to increase, which brings the prices considerably down. Higher production from existing
companies and entry of new companies in the industry disrupts the balance as supply increases
more than demand, which lead to a fall in price. In order to correct this, companies merge with or
acquire other companies in the industry, hence getting rid of excess capacity in the industry.
Factories and plants can be shutdown, since it is no longer profitable to sell at that low a prices.
Usually least productive plants or factories are retired in order to bring the balance back to the
industry. Reducing excess capacity has a lot of benefits as it extends less tangible forms of
capacity in the industry. It makes companies rethink their strategy, and nudges them to work
towards improving quality rather than quantity.

Accelerate growth
Mergers and acquisitions are often undertaken to increase the market share. If competitor
company is taken over, its share of sales is also absorbed. As the result, the acquirer gets higher
sales, revenues and consequently higher profits. Some industries have a mix of very loyal
customers, which means that it is very difficult to attract customers from competition by other

means, as the industry is highly competitive and consumers are disinclined to make the switch.
In such circumstances, merger or acquisition are highly beneficial, since they provide an
opportunity to drastically increase market share. It also allows economies of scale, as per unit
cost decrease due to higher volume. Smaller players in the market are sometimes taken over to
penetrate the market further, where big companies fail to make an impact. Controlling smaller
firms in the industry can greatly accelerate sales of those smaller companies products and
services, since a big name is now attached to them. The acquirer also brings in its expertise and
experience to bring efficiency to the operations of the target company. The combined company
also benefit from exposure to various segments of the industry, which were previously unknown
to the acquirer. The new combined company could help introduce new products tailored for the
unchartered markets, hence finding new consumers for the same products and services.

Acquire skills and technology

Companies often acquire or merge with other companies in hopes to acquire skills and/or
technology of the target company. Some companies control certain technologies exclusively, and
it is too costly to develop these technologies from scratch. This means that it is easier to take
over a company with the desired technology. A merger / an acquisition provides an opportunity
for both companies to combine their technological progress and generate greater value from the
sharing of knowledge and technology. These kinds of merger usually lead to innovation and
entirely new products and services, hence are beneficial not only to the companies themselves,
but to the industry as well. Same goes for skills, which are in certain cases exclusive, and can
only be sought out, if the said company is taken over.

Roll-up strategies
Some firms are too small in the market and are highly fragmented, which means they experience
higher costs, and it is not feasible for them to keep up operations because there are no economies
of scale due to a very small volume. An acquisition is such case is more common and can be
hugely beneficial to the target company, as it could keep on operating only with an element of
economies of scale. It would also help an acquirer, since it would be able to penetrate smaller
fractions of the market, as smaller companies have access to these markets. Hence this kind of
merger creates value for both companies, and promises greater efficiency in the operational
activities. Advertising campaigns can be coordinated together in order to increase revenues and
save on costs.

Encourage competitive behavior

Many companies decide to take over other companies in an attempt to improve the overall
competitive behavior in the industry. This is done by eliminating price competition, which leads
to improvement in rate of internet return of the industry. If the competition is kept at bay, and
new entrants are not allowed, firms dont have to compromise on quality as price is no longer a
competing factor. Smaller businesses can only gain share through offering at lower prices, but
price competition reduces overall profits for the industry. In order to restore the balance, and

invest all effort an energy on quantity, mergers and takeovers are initiated to improve the overall
competitive environment in the industry.

CASE STUDY

Tata Motors: Acquisition of Jaguar &

Land Rover
Ford Motors Company
Location: Dearborn, Michigan; Founded: 1903 by Henry Ford; Competitors: General Motors, Toyota;
Brand names: Lincoln, Mercury, Volvo, Mazda, Jaguar and Land Rover, CEO: Alan Mulally.

1913 - Assembly Line: low priced, mass-produced automobile with standard interchangeable
parts. Hiring of African Americans, Virtual manufacturing, focus on safety, Advantage through
fuel efficiency.
Jaguar: The ups and downs:
1922 - Founded in Blackpool as Swallow Sidecar Company
1960 - Jaguar name first appeared in 1935
1975 - Nationalized in due to financial difficulties
1984 - Floated off as a separate co in the stock market
1990 - Taken over by Ford

A statement of ultra luxury, Holds Royal warrants, Rarely advertised Fords formula one entry
since 1990s.
1948: Land Rover is designed by the Rover Car co
1976: One millionth Land Rover leaves the production line
1994: Rover Group is taken over by BMW

2000: Sold to Ford for 1.8 billion.

The case of Land Rover:
Known for superior off-road performance, Used by military for projects and expeditions, Safe but less
reliable, Makeover in recent times
Key issues:
Ford acquired Jaguar for $2.5 billion in 1989.
Ford acquired Land Rover for $2.75 billion in 2000.
But the US auto major put the two marquees on the market in 2007 after posting losses of $12.6 billion
in 2006 - the heaviest in its 103-year history.
The Deal Process: - 12/06/2007- Announcement from Ford that it plans to sell Land Rover and Jaguar.
August 2007 - Major bidders are identified
Likely buyers: Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management
Indias Tata Motors and M&M arrive as top bidders ($ 2.05b & $ 1.9b)
03/01/2008 Ford announces Tatas as the preferred bidders
26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors.
02/06/2008 The acquisition is complete
TATA MOTORS A SNAPSHOT
TATA GROUP is 150 year old, Previously Tata Engineering and Locomotive Company, Telco.
Tata Motorss break-even point for capacity utilization is one of the best in the industry worldwide

Listed on the New York Stock Exchange in 2004.

Making Waves Internationally
NANO will mark the advent of India as a global centre for small-car production and represent a victory
for those who advocate making cheap goods for potential customers at the 'bottom of the pyramid' in
emerging markets.
International praise came from Standard & Poors, which in December 2006 expressed the view that
the policy to support its companies and the improved financial profile of its entities also enhances the
overall financial flexibility of Tata Motors.
Why is Ford selling?
Reports said losses at Jaguar stood at USD 715 million in 2006. Jaguar has been a dog i.e. it has not
been able to provide any profit for ford because of the high manufacturing costs provided in the United
Kingdom.
The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh
vehicles, an 18% YoY growth in 2007..
Bringing down production costs and turning around the company successfully will be the challenge,
analysts said. Its a test that Ford failed.
Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and
Jaguar is so intertwined.
Ratan Tata says?
We aim to support their growth, while holding true to our principle of allowing the management and
employees to bring their experience and expertise to bear on the growth of the business.
'We have enormous respect for the two brands and will endeavor to preserve and build on their
Heritage and competitiveness, keeping their identities intact,' he said in a statement.
Advantages to acquire JLR?
Long term strategic commitment to automotive sector.
Opportunity to participate in two fast growing auto segments.
Increased business diversity across markets and products.
Land rover provides a natural fit for TMLs suv segment.
Jaguar offers a range of performance/luxury vehicles to broaden the brand portfolio.
Benefits from component sourcing, design services and low cost engineering
Tata and the dream
NEED FOR GROWTH
In the past few years, the Tata group has led the growing appetite among Indian companies to acquire
businesses overseas in Europe, the United States, Australia and Africa - some even several times larger in a bid to consolidate operations and emerge as the new age multinationals.
Tata Motors is India's largest automobile company, with revenues of $7.2 billion in 2006-07. With over
4 million Tata vehicles plying in India, it is the leader in commercial vehicles and the second largest in
passenger vehicles.
COMPETITIVE ADVANTAGE
Tata Motors is vulnerable to greater competition at home. Foreign vehicle makers including Daimler,
Nissan Motor, Volvo and MAN AG have struck local alliances for a bigger presence.

 Tata Motors, which has a joint venture with Fiat for cars, engines and transmissions in India, is also
facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor, Renault and Volkswagen.
Analysts pick
Analysts indicate that Tata Motors can comfortably finance the acquisition of Jaguar and Land Rover.
The Indian automaker is sitting on a cash pile of over Rs 6,000 crore and generated free cash of over Rs
1,000 crore during FY07. It can easily use these reserves to raise more funds without endangering its
finances. At the end of last financial year, Tata Motors debt-to-equity ratio was a low 0.56, giving it
ample head room to raise more funds.
Over the next 3-4 years, Tata Motors plans to invest Rs 12,000 crore in setting up new units for a small
car, trucks and SUVs and also to expand the capacity of its existing units.
challenge for Tata Motors. These marquee brands have very high production costs and require
phenomenally high engineering and research capabilities as they compete with likes of BMW and Audi.
Taking over the brand is easy, bringing down production costs and turning around the company
successfully, will be the challenge, analysts said. Its a test that Ford failed.

WHAT IS TATA PAYING FOR????

FINANCING WAYS
Low leverage of the auto biz provides funding flexibility
Currently financed the purchase through a $3bn, 15month bridge loan
It intends to refinance the loan through long-term funds

 valuable stakes in group companies

owns $400m of Tata Steel at current prices
owns stake in Tata Sons (Tata Groups holding company) worth at least $600m
2. Tata Group has multiple levers
Tata Auto Comp (TACO) - TATA group has a a rich ecosystem of JVs with leading players in
Auto ancillary space held through TACO.
TCS, Corus and Tata Technologies have varied competencies in the Auto space
We believe an improvement of 50-70bps in EBITDA margin possible in JLR over the next 2 years
(current EBITDA margin)
- We estimate CY2007 EBITDA margin of JLR at around 6.5% This could make the acquisition
PAT accretive in CY2009/FY10E

TAMO + JLR: Leverage and Valuation ratios

Leverage increases but coverage ratios reasonable
Headline Debt/Equity of TAMO would increase to 2.5x from 1x
Excluding the vehicle finance biz, leverage would go to 1.2x
EBITDA/Interest remains at 5.0
TAMO is trading inline/modest discount to global peers
EV/Sales (1-yr forward) of 0.5x against 0.4x for global peers
P/E (1-yr forward) of 6.5x against 8.5x for global peers

Q.10 a)Write your observation regarding the JLR deal? Mention its
advantages & disadvantages of this deal?

b) why Ford Sell out these two iconic brands? Mention the reasons?
Reports said losses at Jaguar stood at USD 715 million in 2006. Jaguar has been a dog i.e. it has not been
able to provide any profit for ford because of the high manufacturing costs provided in the United
Kingdom.
The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh
vehicles, an 18% YoY growth in 2007..
Bringing down production costs and turning around the company successfully will be the challenge,
analysts said. Its a test that Ford failed.
Ford is combining both the brands since the products and manufacturing of vehicles for Land Rover and
Jaguar is so intertwined.

c) what are the consequences of this deal financing on TATA group and
its market position?

The obvious threat to Tata Motors is intellectual property rights. Tata invented the cheapest car
on the market and every automobile manufacturer wants to know how Tata did it Headhunters
are soon going to find out this valuable information and make it available to their own company.
This is a huge threat to Tata Motors because at first they had low competition, but once other car
manufactures find out how they invented such a low cost car, and then these companies too will
jump on board and design their own line of low cost automobiles. On one hand this can be a
threat, but on the other it may not affect Tata Motors at all because people will still want to
purchase their product since they were the pioneers of all the excitement.
Other companies are starting to compete for some of this market share. In fact, the Pakistans
Transmission Motor company has built a basic four-wheeler for only $2,100. This car is
considerably cheap and the Pakistan Transmission Motor company started exporting them to
Sudan, Qatar, and Chile. This is going to be the beginning of new emerging car manufactures
that will be producing low priced cars.
Another obvious threat is that dealing with gas prices. Gas prices continue to rise and the Nano
requires gas, but those who purchase the Nano probably do not have a lot of money and so if gas
prices keep jumping up then that market of consumers will not be able to purchase the car. If One
CAT can be made as cheaply as the Nano then that will benefit the consumers even more because
they will get a car that does not run on gas and it will be cheap to purchase. On the other hand,
gas company will not want One CAT to hit the market because there will be no profits to be
made off the vehicle. Gas companies have a lot of say over the automobile industry so this could
be a big threat.
Another main concern that Tata Motors faces is that cheap cars in India will have an adverse
effect on pollution and global warming because most of the population will be able to afford the
cars. With more people driving cars there will be more accidents and deaths, as well as higher
fossil fuels leaked into the environment causing even more pollution then there already is.Tata
Motors is family owned and this can potentially cause problems down the road because some
family members can become greedy and money hungry. Once they really start to rapidly grow
then there may be family feuds and people not pulling their part. Another threat is the whole
point of their cars being made with cheap plastic. Are these cars durable? Will they hold together
in a head-on collision?

ASSIGNMENT C
MULTIPLE CHOICE QUESTIONS
1.________isequaltothetotalmarketvalueofthefirm'scommonstockdividedby(thereplacement
costofthefirm'sassetslessliabilities).
A) Bookvaluepershare
B) Liquidationvaluepershare
C) Marketvaluepershare
D) Tobin'sQ
E) Noneoftheabove.
2.HighP/Eratiostendtoindicatethatacompanywill_______,ceterisparibus.
A) growquickly
B) growatthesamespeedastheaveragecompany
C) growslowly
D) notgrow
E) noneoftheabove
3.________areanalystswhouseinformationconcerningcurrentandprospectiveprofitabilityofa
firmstoassessthefirm'sfairmarketvalue.
A) Creditanalysts
B) Fundamentalanalysts
C) Systemsanalysts
D) Technicalanalysts
E) Specialists
4._______istheamountofmoneypercommonsharethatcouldberealizedbybreakingupthefirm,
sellingtheassets,repayingthedebt,anddistributingtheremaindertoshareholders.
A) Bookvaluepershare
B) Liquidationvaluepershare
C) Marketvaluepershare
D) Tobin'sQ
E) Noneoftheabove
5.The______isacommontermforthemarketconsensusvalueoftherequiredreturnonastock.
A) dividendpayoutratio
B) intrinsicvalue

C) marketcapitalizationrate
D) plowbackrate
E) noneoftheabove
6..Netprofitisequalto:
(a)Saleslesscostofsalesandoperatingexpenses
(b)Grossprofitlessoperatingexpenses
(c)Saleslessoperatingexpenses
(d)Both(a)&(b)
7.Inthelongrun,asuccessfulacquisitionisonethat:
A)enablestheacquirertomakeanallequitypurchase,therebyavoiding
additionalfinancialleverage.
B)enablestheacquirertodiversifyitsassetbase.
C)increasesthemarketpriceoftheacquirer'sstockoverwhatitwouldhavebeenwithout
theacquisition.
D)increasesfinancialleverage.
8.

Atenderofferis
A)agoodwillgesturebya"whiteknight."
B)awouldbeacquirer'sfriendlytakeoverattempt.
C)awouldbeacquirer'soffertobuystockdirectlyfromshareholders.
D)viewedassexualharassmentwhenitoccursintheworkplace.
9. Youareconsideringacquiringacommonstockthatyouwouldliketoholdforoneyear.You
expecttoreceiveboth$2.50individendsand$28fromthesaleofthestockattheendofthe
year.Themaximumpriceyouwouldpayforthestocktodayis_____ifyouwantedtoearna
15%return.
A) $23.91

B)
C)
D)
E)

$24.11
$26.52
$27.50
noneoftheabove

10.
Thepublicsaleofcommonstockinasubsidiaryinwhichtheparentusuallyretains
majoritycontroliscalled
A)apureplay.
B)aspinoff.
C)apartialselloff.
D)anequitycarveout.
11.

Onemeansforacompanyto"goprivate"is
A)divestiture.
B)thepureplay.
C)theleveragedbuyout(LBO).
D)theprepackagedreorganization.

Q.12Hindranceforgoingintheinternationalbusinessisknownas
a. Synergy
b. Turnkeypoint
c. Tradebarrier
d. Minorityinterest
Q.13.___________________isthecombinationofatleasttwofirmsdoingsimilarbusinessesat
thesamemarketlevel.
a) DiversifiedactivityMerger
b) HorizontalMerger
c) JointVenture
d) VerticalMerger.

Q.14.WhichofthefollowingisNOTrecognizedasamisconceptionaboutentrepreneurship?
a)Entrepreneurshipisfoundonlyissmallbusinesses.
b)Entrepreneurshipiseasy.
c)Successfulentrepreneurshipneedsonlyagreatidea.
d)Entrepreneurialventuresandsmallbusinessesaredifferent.
Q.15.Anentrepreneursprimarymotivationforstartingabusinessis
a. Tomakemoney
b. Tobeindependent
c. Tobefamous
d. Tobepowerful
Q.16.Entrepreneurstypicallyform
a. Servicebusinesses
b. Manufacturingcompanies
c. Constructivecompanies
d. Avarietyofventures
Q.17.Jointventureshavebeenusedbyentrepreneur:
a. Whentheentrepreneurwantstopurchaselocalknowledge
b. Whenrapidentryintothemarketisneeded
c. Bothoftheoptionsgiven
d. Noneoftheabove
Q.18.The_________ofaventurecouldbethatthecompanyhasexperienceinrelated
business.
a.Strength
b.Weakness
c.Opportunity
d.Threat
Q.19.Franchisingis:
a).Purchaseallpartofcompany.
b)Allowinganotherpartytouseaproductorservicesundertheownersname.
c).Joiningtwoormorecompanies.
d).Acompanyacquiringanothercompanyagainstitswill.

20.Manymergersbeginthroughaseriesofnegotiationsbetweenthetwocompanies.Ifthetwo
companiesdecidetoseriouslyinvestigatethepossibilityofamerger,theywilllaunchPhaseIIDue
Diligenceandexecutea:
a. PostMergerContract
b. FormalJointConference
c. Merger&AcquisitionAgreement
d. LetterofIntent
21.Eitherpartyinamergerandacquisitionmaybeentitledtoindemnificationbecauseofasignificant
misrepresentation.Indemnificationisusuallynotdueuntilacertainthresholdhasbeenreached.This
thresholdamountisoftencalledthe:
a. ReciprocalAmount
b. BasketAmount
c. StrikingPrice
d. ClosingRate
22.OnMarch3,1998,MiserSteelmadeatenderoffertoacquireRelianceSteel.Miser'stenderoffer
issettoexpireonMarch23,1998.OnMarch21,1998,anothercompanycalledOhioSteelmadea
tenderoffertoacquireRelianceSteel.BasedonconsiderationofOhioSteel'stenderoffer,theclosing
dateforMiserSteel'stenderofferis:
a. March21,1998
b. March23,1998
c. March25,1998
d. March31,1998
23.Duediligencerequiresthecollectionofalotofinformation.Whichofthefollowinginformation
typeswouldbeleastimportantforduediligencetoworkproperly?
a. EmploymentRecordsofTargetCompany
b. PropertyRecordsofCompetingCompanies
c. FinancialRecordsofTargetCompany
d. PropertyRecordsofTargetCompany

24.Duediligencewillattempttorestatefinancialstatementsinrelationtowhatwilltakeplaceafterthe
twocompaniesmerge.OneareaofparticularconcernasitrelatestotheBalanceSheetis:
a. ProperValuationofCash
b. ParValueAssignedtoStock
c. SelectionofDepreciationMethods
d. PossibleUnderstatementofLiabilities
25.Duediligenceisparticularlyimportantinthecaseofareversemergersinceitisnecessaryto"clean
theShellCompany."OneimportantaspectofcleaningtheShellCompanyisto:
a. ConfirmownershipoftheShellCompany
b. Identifyculturalandsocialissues
c. Planforlongtermintegration
d. Evaluatehumanresourcecapital

Q.26.Thefollowingareexamplesofchangesincorporatecontrolexcept:
(a)Merger&Acquisition
(b)LeverageBuyOut(LBOs)
(c)Proxyfights
(d)SpinOff&carveouts

Q.27Leveragedbuyouts(LBOs)almostalwaysinvolve:
(a)AAAgradedebt
(b)Issuanceofnewsharesofstocktomanyinvestors.
(c)Junkgradedebt
(d)Alloftheabove

Q.28. Whichofthefollowingtactics completely eliminates the possibility ofatakeover via

tenderoffer?
(a)LeverageBuyOut(LBOs)
(b)Exclusionarysekftender
(c)Targetedrepurchase
(d)Supermajorityamendment.

Q.29.BiggainersfromLBOswere:
(a)Junkbondholder
(b)Raiders
(c)Sellingstockholders.
(d)Investmentbankingfirm.

Q.30.Junkbondsarebondswith:
(a)AAAorAaaratings
(b).BBBorBaaratings
(c).BBorBaratings.
(d).Dratedbonds.

Q.31.Incaseofcarveouts:
(a).Sharesofthenewcompanyaregiventotheshareholdersoftheparentcompany
(b).Sharesofthenewcompanyaresoldinapublicoffering

(c).Sharesofthenewcompanyareboughtbyborrowingorissuingjunkbonds
(d).Noneoftheabove.
Q.32.Aprivatizationisa:
(a)Saleofagovernmentownedcompanytoprivateinvestor
(b).Saleofprivatecompaniestothegovernment.
(c).Saleofapubliclytradedcompanytoprivateinvestors.
(d).Noneoftheabove.
Q.33.Whichofthefollowingstatementsregardingspinoffsandcarveoutsisnottrue?
(a).Spinoffsarenottaxediftheshareholdersoftheparentcompanyaregivenamajority
ofsharesinthenewcompany.
(b).Spinoffsarenottaxediftheshareholdersoftheparentcompanyaregivenatleast80%of
thesharesinthenewcompany.
(c).Gainsorlossesfromcarveoutsaretaxedatthecorporatetaxrate.
(d).noneoftheabove.

Q.34.Thefollowingareimportantmotivesforprivatizationexcept:
(a).Revenueforthegovernment.
(b).Increasedefficiency.
(c).Conglomeratemerger.
(d).Privatization.

Q.35."Effective"controlofafirmrequiresapproximately:
(A).100%ownership.
(b).51%ownership.

(c).50%ownership.
(d).20%ownership.
Q.36SupposethatthemarketpriceofCompanyXis$45pershareandthatofCompanyYis
$30.IfXoffersthreefourthsashareofcommonstockforeachshareofY,theratioofexchange
ofmarketpriceswouldbe:
A).667
B)1.0
C)1.125
D)1.5.
Q.37Therestructuringofacorporationshouldbeundertakenif
A).therestructuringcanpreventanunwantedtakeover.
B)therestructuringisexpectedtocreatevalueforshareholders.
C)therestructuringisexpectedtoincreasethefirm'srevenue.
D)theinterestsofbondholdersarenotnegativelyaffected.

Q.38The"informationeffect"referstothenotionthat
A).acorporation'sactionsmayconveyinformationaboutitsfutureprospects.
B).managementisreluctanttoprovidefinancialinformationthatisnotrequiredbylaw.
C).agentsincurcostsintryingtoobtaininformation.
D).thefinancialmanagershouldattempttomanagesensitiveinformationaboutthefirm.
Q.39Inthelongrun,asuccessfulacquisitionisonethat:
A).Enablestheacquirertomakeanallequitypurchase,therebyavoidingadditionalfinancial
leverage.
B).Enablestheacquirertodiversifyitsassetbase.
C).Increasesthemarketpriceoftheacquirer'sstockoverwhatitwouldhavebeenwithout
theacquisition.
D).Increasesfinancialleverage.
Q.40Biddingcompaniesoftenpaytoomuchfortheacquiredfirm.Thehubrishypothesis
explainsthisbysuggestingthatthebidders

A).havetoolittleinformationtomakeanoptimaldecision.
B).havebigegosandthisimpedesrationaldecisionmaking.
C).havedifficultyinthinkingstrategicallyoverthelongterm.
D).Areoverlyinfluencedbythetaxconsequencesofanacquisition.