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CA Final Corporate Spin-Off — practice questions — page 2

Explore 55 free Corporate Spin-Off questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Corporate Spin-Off questions and exercises with answers

Showing questions 31–55 of 55.

What is a disadvantage of seller financing for the selling party?Read the answer and worked solution →Why do banks often refuse to fund an MBO with a loan?Read the answer and worked solution →In an MBO, what conflict of interest do managers face?Read the answer and worked solution →How does senior debt differ from junior debt in an LBO?Read the answer and worked solution →Which kind of target do private equity firms prefer for an LBO?Read the answer and worked solution →Why do LBO buyers avoid targets with high fixed costs?Read the answer and worked solution →What can happen to an over-leveraged company in an LBO?Read the answer and worked solution →Why did Campeau's 1988 Federated buyout fail?Read the answer and worked solution →What is a secondary buyout?Read the answer and worked solution →In LBO jargon, what does a PtP transaction mean?Read the answer and worked solution →After failed LBOs, how did banks respond?Read the answer and worked solution →Buy at Rs 200 crore with Rs 120 crore debt; sell at Rs 260 crore with Rs 60 crore debt left. Equity multiple?Read the answer and worked solution →Another name for a special-purpose acquisition company (SPAC) is what?Read the answer and worked solution →What is the purpose of a SPAC?Read the answer and worked solution →By market convention, what share of SPAC IPO proceeds is held in trust?Read the answer and worked solution →A SPAC target must have fair market value of at least what share of the SPAC's net assets?Read the answer and worked solution →A SPAC has net assets of USD 250 million. What is the minimum fair market value of its target under the 80% rule?Read the answer and worked solution →Under which SEC form is a SPAC public offering typically filed?Read the answer and worked solution →SPAC shares redeemable at USD 10 averaged USD 3.85 post-merger. About what fall is that?Read the answer and worked solution →In which year did SPAC IPOs peak with 613 IPOs raising about USD 162 billion?Read the answer and worked solution →Which SPAC debuted on the Hong Kong exchange on March 18, 2022?Read the answer and worked solution →What right do SPAC investors have at merger?Read the answer and worked solution →A SPAC listing is called the poor man's version of what?Read the answer and worked solution →Compared with an IPO, a SPAC route requires what?Read the answer and worked solution →What do the new SEC rules adopted in 2024 require SPAC filings to display prominently?Read the answer and worked solution →

Worked practice questions

What is a disadvantage of seller financing for the selling party?

  1. It pays interest to the managers
  2. It cannot sell the firm again
  3. It waits long for cash after exit
  4. It must hire a private equity fund
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Correct answer: C. It waits long for cash after exit

Payment arrives over later years, after the seller has already lost control.

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Why do banks often refuse to fund an MBO with a loan?

  1. Managers lack legal capacity
  2. Banks may not lend to firms
  3. Such deals are always illegal
  4. They see such deals as too risky
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Correct answer: D. They see such deals as too risky

Banks frequently see MBOs as too risky, so managers turn to private equity.

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In an MBO, what conflict of interest do managers face?

  1. They want high tax but low profit
  2. They want a low price, owners high
  3. They want to sell but cannot
  4. They want debt but lack a bank
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Correct answer: B. They want a low price, owners high

Managers personally gain from a low purchase price, while their employers, the owners, want a high one.

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