Dixie and ten of her wealthy friends formed a group and borrowed the funds necessary to acquire 100 percent

Firms A and B formally agree to each put up $25 million to create firm C. Firm C will perform environmental testing on the products produced by both Firm A and Firm B. Which one of the following terms describes Firm C?    A.  joint venture B.  going-private transaction C.  conglomerate D.  subsidiary E.  leveraged buyout Refer to section 26.1

28.

Dixie and ten of her wealthy friends formed a group and borrowed the funds necessary to acquire 100 percent of the outstanding shares of Southern Fried Chicken. This transaction is known as a:    A.  proxy contest. B.  management buyout. C.  vertical acquisition. D.  leveraged buyout. E.  unfriendly takeover. Refer to section 26.1

29.

In a tax-free acquisition, the shareholders of the target firm:    A.  receive income which is considered to be tax-exempt. B.  gift their shares to a tax-exempt organization and therefore have no taxable gain. C.  are viewed as having exchanged shares on a dollar-for-dollar basis. D.  sell their shares to a qualifying entity thereby avoiding both income and capital gains taxes. E.  sell their shares at cost thereby avoiding the capital gains tax. Refer to section 26.2

30.

Which of the following are required for an acquisition to be considered tax-free? I. continuity of equity interest II. a business purpose, other than avoiding taxes, for the acquisition III. payment in the form of equity shares for the acquired firm IV. cash payment for the equity of the acquired firm    A.  I and II only B.  II and III only C.  II and IV only D.  I, II, and III only E.  I, II, and IV only Refer to section 26.2

31.

Which one of the following statements is correct?    A.  The shareholders of an acquired firm are generally given a choice of accepting either cash or shares of stock when the acquisition is tax-free. B.  To be a tax-free acquisition, the shareholders of an acquired firm must receive shares in the acquiring firm that are equal to 95 percent or less of the value of the shares held in the acquired firm. C.  The assets of an acquired firm are recorded on the books of the acquiring firm at their current book value regardless of the tax status of the acquisition. D.  Target firm shareholders demand a higher selling price when an acquisition is a non-taxable event. E.  If the assets of a firm are written up as part of the acquisition process, the increase in value is considered to be a taxable gain.