Chapter 7 Quiz

A process of validating the representations made by a seller, normally to an investor

• Merger

• Due Diligence

• Acquisition

• Other Valuation Technique

The target's value is calculated based on the projected future cash flows with appropriate discount rate

• Discounted Cash Flow

• Comparable Company Analysis

• Economic Value Added

• Comparable transaction analysis

When two companies merged coming from different stages of production or value chain

• Vertical Merger

• Horizontal Merger

• Conglomerate Merger

• Diagonal Merger

The parent company offers shareholders the option to keep their current shares or exchange them for shares of the divesting company

• Split off

• Equity carve out

• Divestiture

• Spin off

This is concerned with the legal and financials of the company under evaluation. So essentially, this is quantitative, which measurement can be normally done by use of mathematical calculation.

• Soft Due Diligence

• Combined Due Diligence

• Hard Due Diligence

• Semi-Hard Due Diligence

Serves as the best document to support the financial performance and financial position of the company including their cash flows.

• Market Capitalization

• Financial Statement

• Stock Price History

• Market Expectations

It tends to fluctuate a lot due to evolving market conditions which make it extremely subjective.

• Income-based valuation

• Dividend paying capacity method

• Return on investment based valuation

• Divestiture

A corporate strategy that allows company to combine its assets to another company or to acquire another company

• Mergers and Acquisitions

• Consolidation

• Perfect Combination

• Due diligence

When parent purchases more interest from its subsidiary

• Subsidiary M&As

• Statutory M&As

• Short-form M&As

• Basic M&As

The following are the top reasons why companies entered M & A's except:

• Manage the Cost Capital

• Economics of Scale

• Expansion and Growth

• Technological advancement