Reference no: EM132931487

Problem 1: Small positive or negative returns to acquiring-company shareholders may be explained by:

a) Tax loss benefits of a target.

b) Perceived cost reductions due to economies of scale in operations.

c) Perceived benefit of the method of financing the takeover to reduce agency costs.

d) The over-confidence of acquiring-company management in their ability to value other companies.

e) None of the above statements is correct.

Problem 2: Which of the following statements is true?

a) Debt covenants are equally likely to be designed to prevent companies from undertaking both low and high-risk projects.

b) Debt covenants are more likely to be designed to prevent companies from undertaking low-risk than high-risk projects.

c) The level of risk of projects is not relevant in designing debt covenant.

d) Debt covenants will typically only be introduced once a firm experiences financial distress.

e) None of the above statements is true.