Lesson 2.1.1b

2.1.1b External (inorganic) growth: merger and takeover Quiz: Pearson Edexcel Business, Unit 6

20 questions

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Lesson 2.1.1b, External (inorganic) growth: merger and takeover: 20 multiple choice questions for the Pearson Edexcel GCSE Business (1BS0), Unit 6: Growing the business, written with Revision Ninja.

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The 20 questions

  1. What is external (inorganic) growth?

    • Growth funded only by profit the business has kept from earlier years
    • Growth achieved by merging with or taking over another business
    • Growth achieved by developing new products within the existing firm
    • Growth achieved by cutting costs and closing unprofitable branches

  2. In a merger, two businesses:

    • one business sells its surplus assets to a rival at a loss
    • one business moves its production to a lower-cost country
    • one business borrows from a bank to fund a new factory
    • agree to combine to form one new or combined business

  3. A takeover happens when one business:

    • sells its entire product range to a rival business
    • agrees to share its profits with another business for ten years
    • lends a large sum of money to another business at a fixed rate
    • gains control of another business, usually by buying a majority of its shares

  4. Which of these is an example of external growth?

    • A clothing retailer acquiring a rival chain of shops
    • A clothing retailer training its staff to improve customer service
    • A clothing retailer launching a new range of its own designs
    • A clothing retailer opening a new shop in its home town

  5. When a bidder offers shareholders more than the current share price, the extra amount is called:

    • a dividend
    • a premium
    • a tariff
    • a royalty

  6. What is a hostile takeover?

    • A takeover of a business by its own senior managers
    • A takeover paid for entirely in cash by the buyer
    • A takeover the target firm's directors do not agree to
    • A takeover financed by a government grant

  7. Which stakeholders are most likely to face job losses after a merger?

    • Suppliers who sell only to overseas businesses
    • Owners of a separate business in an unrelated sector
    • Customers who buy the company's products regularly
    • Employees working at duplicated sites or in overlapping roles

  8. A key advantage of growth through merger is:

    • faster access to a larger market share than organic growth would give
    • guaranteed higher profits in every year after the merger
    • no need to pay for any of the assets the new business uses
    • automatic removal of every competitor from the market

  9. Firm A has a 20% market share and Firm B has 15%. After a merger with no customers gained or lost, what is the combined market share?

    • 17.5%
    • 30%
    • 35%
    • 40%

  10. A target's shares trade at £2.00 each and a bidder offers £2.50 per share. What is the premium per share?

    • £4.50
    • £2.50
    • £0.25
    • £0.50

  11. A supermarket merges with a rival in the same town. Which benefit is most likely?

    • Complete removal of all customer complaints about service
    • Guaranteed rise in the value of every product line
    • Lower average cost per unit from shared buying power
    • Automatic exemption from local business rates

  12. A fashion firm takes over an online retailer to sell more goods online. What is the main reason?

    • To reduce its own number of shops to zero
    • To gain a route to online customers quickly
    • To avoid paying any tax on its UK sales
    • To comply with a new law on product packaging

  13. After a takeover, the new owner closes a duplicate factory. What is the most likely short-term impact on the local community?

    • Local tax income increases sharply overnight
    • Some workers lose their jobs and local spending falls
    • Local spending rises as the factory closes
    • Rival firms are forced to move out of the town

  14. A merger reduces the number of competitors in a market. What is the likely effect on consumers?

    • Less choice and possibly higher prices
    • Higher quality with no change in price
    • No change in choice or prices at all
    • More choice and lower prices

  15. A business that grew by takeover finds that the two staff cultures clash. What problem does this create?

    • An automatic increase in the number of shareholders
    • Integration problems that can reduce productivity
    • Lower borrowing costs for the combined business
    • A guaranteed rise in market share in the next year

  16. A business's profit before interest is £0.5m and it pays £0.4m interest on a loan used for a takeover. What is profit after interest?

    • £0.4m
    • £5.5m
    • £0.1m
    • £0.9m

  17. A target's shares trade at £3.20 and a bidder offers £3.80 per share. What is the premium as a percentage of the market price?

    • About 3%
    • About 19%
    • About 119%
    • About 25%

  18. Which is the most likely reason a merger may fail to deliver its expected benefits?

    • Poor integration of two different organisational cultures and systems
    • The combined firm has a larger market share than planned
    • Both firms are listed on the stock market
    • The merged business pays no tax on its profits

  19. Which is the strongest trade-off of growing through takeover rather than internally?

    • Guaranteed profits, but no change in market share
    • Faster growth in size, but higher debt and greater integration risk
    • Slower growth, but no debt and no integration risk at all
    • More owner control with no risk to the business

  20. A firm pays £40m for a rival whose net assets are valued at £25m. How much is paid above the value of the net assets?

    • £40m
    • £15m
    • £65m
    • £25m

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