CFM Mergers, Acquisitions & Corporate Restructuring

Question 1

What is the primary purpose of due diligence in a merger or acquisition?

Accepted Answer

To assess risks and verify the target's financial, legal, and operational information

Answer

Due diligence involves thoroughly investigating the target company to identify risks, liabilities, and verify all disclosed information before completing the transaction.

Question 2

When an acquirer pays more than the fair market value of a target's identifiable net assets, the excess amount is recorded on the consolidated balance sheet as:

Accepted Answer

Goodwill

Answer

Goodwill represents the excess of the purchase price over the fair value of all identifiable net assets acquired, reflecting intangibles such as brand reputation, customer relationships, and expected synergies.

Question 3

Which M&A valuation approach determines a target's value by benchmarking its financial multiples against those of similar publicly traded firms?

Accepted Answer

Comparable Company Analysis (CCA)

Answer

Comparable Company Analysis uses market-derived multiples such as EV/EBITDA or P/E from peer companies in the same industry to estimate the target's fair value.

Question 4

A leveraged buyout (LBO) is primarily financed by:

Accepted Answer

Borrowed funds secured by the target's assets and cash flows

Answer

In an LBO, the acquirer uses a high proportion of debt—typically secured by the target's own assets and future cash flows—to fund the purchase, minimizing the equity contribution required.

Question 5

Operational synergies in an M&A transaction most commonly refer to:

Accepted Answer

Cost savings and revenue enhancements generated by combining operations

Answer

Operational synergies arise when the combined entity achieves greater efficiency or revenue than the two standalone firms through economies of scale, eliminated redundancies, or cross-selling opportunities.

CFM - Certified Finance Manager Practice Test

CFM - Certified Finance Manager Practice Test

CFM Mergers, Acquisitions & Corporate Restructuring