Problem 1.) What is meant by a change in corporate control? List and describe the various ways in which a change of corporate control may occur.
Problem 2.) What is the signaling theory of mergers? What is the relationship between signaling and the mode of payment used in acquisitions?
Problem 3.) Why do creditors usually accept a plan for financial rehabilitation rather than demand liquidation of a business?
Problem 4.) Who would use Altman's Z-score to predict bankruptcy? Why would the ability to predict bankruptcy be useful to them?
Problem 5.) Describe the relationship between conglomerate mergers and portfolio theory. What is the desired result of merging two unrelated businesses? Has the empirical evidence proven corporate diversification to be successful?
Problem 6.) What are the advantages and disadvantages of a voluntary workout to resolve financial distress? What are the advantages and disadvantages of declaring bankruptcy to resolve financial distress?
Problem 7.) Explain why the option to delay entering bankruptcy has value for corporate managers.
Problem 8.) Elaborate on the significance of the mode of payment for the stockholders of the target firm and their continued interest in the surviving firm. Specifically, which form of payment retains the stockholders of the target firm as stockholders in the surviving firm? Which payment form received preferential tax treatment?
Problem 9.) A business can be liquidated for $700,000, or it can be reorganized. Reorganization would require an investment of $400,000. If the company is reorganized, earnings are projects to be $150,000 per year, and the company would trade at a price/earnings ratio 8.0 times. Should the company be liquidated or reorganized?