The premium for a warrant would increase if its underlying common stock has a ne

Question

The premium for a warrant would increase if its underlying common stock has a negative market outlook. True or False

Vertical integration represents acquisition of a competitor. True or False

When the market price of a common stock rises above the conversion price, the convertible should always be converted immediately before it drops. True or False

If an acquiring firm's merger proposal was initially rejected by a target firm's management and board of directors, the acquiring firm could utilize a tender offer to gain control of the target firm. True or False

Forced conversion refers to the corporation calling a convertible bond when the market price of the stock is above the conversion price by more than a small percentage. True or False

The stock market reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business, or if it seems to sharpen the company's focus. True or False

Generally, once a convertible bond trades at a certain premium to its intrinsic value, or at a certain multiple of its conversion price, the bond must be converted into common stock. True or False

The potential of a tax loss carryforward has no effect when considering the acquisition of a company. True or False

A cash purchase is similar to a capital budgeting decision. True or False

Stockholders of acquired firms in mergers tend to be more concerned with future earnings and dividends exchanged than with the market value exchanged. True or False

Synergy is the greatest and most easily measured nonfinancial benefit in a merger. True or False

Mergers often improve the financing flexibility that a larger company has available. True or False

A warrant's speculative premium equals the market price of the underlying common stock minus the option price. True or False

Selling stockholders may receive a price well above current market or book value.True or False

One potential advantage of a merger to the acquiring firm is the Portfolio Effect which attempts to achieve risk reduction while perhaps maintaining the rate of return for the firm. True or False

One of the reasons that companies merge with other companies is to secure access to a competing industry. True or False

Explanation / Answer

The premium for a warrant would increase if its underlying common stock has a negative market outlook. True or False

Vertical integration represents acquisition of a competitor. False

When the market price of a common stock rises above the conversion price, the convertible should always be converted immediately before it drops. True

If an acquiring firm's merger proposal was initially rejected by a target firm's management and board of directors, the acquiring firm could utilize a tender offer to gain control of the target firm. True

Forced conversion refers to the corporation calling a convertible bond when the market price of the stock is above the conversion price by more than a small percentage. True

The stock market reaction to divestitures may actually be positive if the divestiture is perceived to rid the company of an unprofitable business, or if it seems to sharpen the company's focus. False

Generally, once a convertible bond trades at a certain premium to its intrinsic value, or at a certain multiple of its conversion price, the bond must be converted into common stock. True

The potential of a tax loss carryforward has no effect when considering the acquisition of a company. True or False

A cash purchase is similar to a capital budgeting decision. True
Stockholders of acquired firms in mergers tend to be more concerned with future earnings and dividends exchanged than with the market value exchanged. True

Synergy is the greatest and most easily measured nonfinancial benefit in a merger. True

Mergers often improve the financing flexibility that a larger company has available. False

A warrant's speculative premium equals the market price of the underlying common stock minus the option price. True

Selling stockholders may receive a price well above current market or book value.True

One potential advantage of a merger to the acquiring firm is the Portfolio Effect which attempts to achieve risk reduction while perhaps maintaining the rate of return for the firm. False

One of the reasons that companies merge with other companies is to secure access to a competing industry. True

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