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Findings from several studies on corporate mergers and

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Findings from several studies on corporate mergers and [#permalink]

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01 May 2013, 20:26
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Question 1
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65% (02:46) correct 35% (01:35) wrong based on 169

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Question 2
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55% (00:56) correct 45% (01:15) wrong based on 170

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43% (00:48) correct 57% (02:13) wrong based on 23

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Findings from several studies on corporate mergers and acquisitions during the 1970s and 1980s raise questions about why firms initiate and consummate such transactions. One study showed, for example, that acquiring firms were on average unable to maintain acquired firms' pre-merger levels of profitability. A second study concluded that post acquisition gains to most acquiring firms were not adequate to cover the premiums paid to obtain acquired firms. A third demonstrated that, following the announcement of a prospective merger, the stock of the prospective acquiring firm tends to increase in value much less than does that of the firm for which it bids. Yet mergers and acquisitions remain common, and bidders continue to assert that their objectives are economic ones. Acquisitions may well have the desirable effect of channeling a nation's resources efficiently from less to more efficient sectors of its economy, but the individual acquisitions executives arranging these deals must see them as advancing either their own or their companies' private economic interests. It seems that factors having little to do with corporate economic interests explain acquisitions. These factors may include the incentive compensation of executives, lack of monitoring by boards of directors, and managerial error in estimating the value of firms targeted for acquisition. Alternatively, the acquisition acts of bidders may derive from modeling: a manager does what other managers do.
Q11:According to the passage, during the 1970’s and 1980’s bidding firms differed from the firms for which they bid in that bidding firms
A. tended to be more profitable before a merger than after a merger
B. were more often concerned about the impact of acquisitions on national economies
C. were run by managers whose actions were modeled on those of other managers
D. anticipated greater economic advantages from prospective mergers
E. experienced less of an increase in stock value when a prospective merger was announced

[Reveal] Spoiler:
E

Q12:It can inferred from the passage that the author would be most likely to agree with which of the following statements about corporate acquisitions?
A. Their known benefits to national economies explain their appeal to individual firms during the 1970’s and 1980’s.
B. Despite their adverse impact on some firms, they are the best way to channel resources from less to more productive sectors of a nation’s economy.
C. They are as likely to occur because of poor monitoring by boards of directors as to be caused by incentive compensation for managers.
D. They will be less prevalent in the future, since their actual effects will gain wider recognition.
E. Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur.

[Reveal] Spoiler:
E

Q13:The author of the passage implies that which of the following is a possible partial explanation for acquisition behavior during the 1970’s and 1980’s?
A. Managers wished to imitate other managers primarily because they saw how financially beneficial other firms’ acquisitions were.
B. Managers miscalculated the value of firms that were to be acquired.
C. Lack of consensus within boards of directors resulted in their imposing conflicting goals on managers.
D. Total compensation packages for managers increased during that period.
E. The value of bidding firms’ stock increased significantly when prospective mergers were announced.
[Reveal] Spoiler:
B

[Reveal] Spoiler:
For Q12, B is clearly stated in line no 17 but I am surprised to see the answer as E/

[Reveal] Spoiler: Question #1 OA
[Reveal] Spoiler: Question #2 OA
[Reveal] Spoiler: Question #3 OA

Last edited by Skywalker18 on 12 Sep 2017, 03:17, edited 2 times in total.
formatted

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Re: Findings from several studies on corporate mergers and [#permalink]

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01 May 2013, 22:55
RP:

B. is too strong a statement. although line no 17 says, "Acquisitions may well have the desirable effect of channeling a nation's resources efficiently from less to more efficientsectors of its economy", it does not mean "they are the best way to channel resources....". Here the word "best way" in my opinion has negated that option.

coming back to the rest of the options.

A. there is no such mention of "benefit to national economies", its just a relative comparison of national and self interests.

C. I have my doubts on this answer. i went with this.

D. clearly NOT.

E. i opted out of this answer because there in no mention in the passage about the "frequency of acquisition".

IMO C.

please someone explain why E ??

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Re: Findings from several studies on corporate mergers and [#permalink]

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02 May 2013, 00:09
C is incorrect since while both the reasons are the causes of mergers and acquisitions no mention is given of the equal likelihood. E correctly states the crux of the passage that factors other economics are responsible for the popularity of mergers and acquisitions

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Re: Findings from several studies on corporate mergers and [#permalink]

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02 May 2013, 00:18
C is incorrect since while both the reasons are the causes of mergers and acquisitions no mention is given of the equal likelihood. E correctly states the crux of the passage that factors other economics are responsible for the popularity of mergers and acquisitions

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Re: Findings from several studies on corporate mergers and [#permalink]

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07 May 2013, 00:05
rajmatthew wrote:
C is incorrect since while both the reasons are the causes of mergers and acquisitions no mention is given of the equal likelihood. E correctly states the crux of the passage that factors other economics are responsible for the popularity of mergers and acquisitions

I am still confused between C and E. while C refers to likelihood which is not directly mentioned in the passage anywhere, E talks about frequency of acquisitions, which is also not directly mentioned in the passage. How does E stand correct then?
Even the explanation given in OG does not seems satisfactory.

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Re: Findings from several studies on corporate mergers and [#permalink]

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07 May 2013, 07:00
The term common is used in the passage which refers to frequency Hope this clarifies why E.

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Re: Findings from several studies on corporate mergers and [#permalink]

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13 Nov 2016, 21:23
Well, the passage seemed easy to me even though I am terrible at 700+ RCs.

Q11:According to the passage, during the 1970’s and 1980’s bidding firms differed from the firms for which they bid in that bidding firms
A. tended to be more profitable before a merger than after a merger
B. were more often concerned about the impact of acquisitions on national economies
C. were run by managers whose actions were modeled on those of other managers
D. anticipated greater economic advantages from prospective mergers
E. experienced less of an increase in stock value when a prospective merger was announced
It's obvious because the author states:
A third demonstrated that, following the announcement of a prospective merger, the stock of the prospective acquiring firm tends to increase in value much less than does that of the firm for which it bids.

Q12:It can inferred from the passage that the author would be most likely to agree with which of the following statements about corporate acquisitions?
A. Their known benefits to national economies explain their appeal to individual firms during the 1970’s and 1980’s.
B. Despite their adverse impact on some firms, they are the best way to channel resources from less to more productive sectors of a nation’s economy.
C. They are as likely to occur because of poor monitoring by boards of directors as to be caused by incentive compensation for managers.
D. They will be less prevalent in the future, since their actual effects will gain wider recognition.
E. Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur.
An easy one too. According the passage:
It seems that factors (the author means economic factors, stated in the previous sentence) having little to do with corporate economic interests explain acquisitions. These factors may include the incentive compensation of executives, lack of monitoring by boards of directors, and managerial error in estimating the value of firms targeted for acquisition.

Q13:The author of the passage implies that which of the following is a possible partial explanation for acquisition behavior during the 1970’s and 1980’s?
A. Managers wished to imitate other managers primarily because they saw how financially beneficial other firms’ acquisitions were.
B. Managers miscalculated the value of firms that were to be acquired.
According to the passage:
These factors may include the incentive compensation of executives, lack of monitoring by boards of directors, and managerial error in estimating the value of firms targeted for acquisition.
managerial error in estimating the value of firms targeted for acquisition = Managers miscalculated the value of firms that were to be acquired
C. Lack of consensus within boards of directors resulted in their imposing conflicting goals on managers.
D. Total compensation packages for managers increased during that period.
E. The value of bidding firms’ stock increased significantly when prospective mergers were announced.

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Re: Findings from several studies on corporate mergers and [#permalink]

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01 Sep 2017, 00:38
Could not get q13? please explain in detail.

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Re: Findings from several studies on corporate mergers and [#permalink]

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02 Sep 2017, 00:55
IIMC wrote:
Could not get q13? please explain in detail.

Quote:
Q13:The author of the passage implies that which of the following is a possible partial explanation for acquisition behavior during the 1970’s and 1980’s?
A. Managers wished to imitate other managers primarily because they saw how financially beneficial other firms’ acquisitions were.
B. Managers miscalculated the value of firms that were to be acquired.
C. Lack of consensus within boards of directors resulted in their imposing conflicting goals on managers.
D. Total compensation packages for managers increased during that period.
E. The value of bidding firms’ stock increased significantly when prospective mergers were announced.

The answer lies in the following portion, particularly the part in bold:
Quote:
It seems that factors having little to do with corporate economic interests explain acquisitions. These factors may include the incentive compensation of executives, lack of monitoring by boards of directors, and managerial error in estimating the value of firms targeted for acquisition. Alternatively, the acquisition acts of bidders may derive from modeling: a manager does what other managers do.

Thus, the passage suggests that acquisitions might be partially explained by "managerial error in estimating the value of firms targeted for acquisition." If that's the case, then we can infer that this reason might also be a "possible partial explanation for acquisition behavior during the 1970’s and 1980’s" (as stated in question 13).

Choice (B) describes the possible partial explanation suggested by the portion in bold.
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Re: Findings from several studies on corporate mergers and [#permalink]

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02 Sep 2017, 20:16
C may be a reason why acquisitions take place but they are not the reason companies and managers actually go about bidding.

E is definitely the straight winner as it discusses the other factors are the clear reason to explain the frequency of acquisitions.

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Re: Findings from several studies on corporate mergers and   [#permalink] 02 Sep 2017, 20:16
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