CPFM Mergers and Acquisitions Finance 2

Question 1

In M&A valuation, a precedent transactions analysis establishes value by examining:

Accepted Answer

Multiples paid in similar historical M&A deals

Answer

Precedent transactions analysis uses valuation multiples from past comparable M&A deals to estimate a fair acquisition price.

Question 2

Which M&A defense strategy involves the target company acquiring the acquirer's business or a significant stake in it?

Accepted Answer

Pac-Man defense

Answer

The Pac-Man defense occurs when the target turns the tables and attempts to acquire the hostile bidder.

Question 3

An accretive acquisition means the deal will:

Accepted Answer

Increase the acquirer's earnings per share

Answer

An accretive deal increases the acquirer's EPS because the target's earnings contribution exceeds the dilution from new shares or financing costs.

Question 4

Which financial metric is used in M&A to measure a target's ability to service acquisition debt?

Accepted Answer

EBITDA

Answer

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is the key proxy for cash flow available to service acquisition debt.

Question 5

In purchase price allocation following an acquisition, any excess of purchase price over the fair value of net identifiable assets is recorded as:

Accepted Answer

Goodwill

Answer

Under ASC 805, goodwill is recognized as the excess of the acquisition price over the fair value of the identifiable net assets acquired.

CPFM Practice Test