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
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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
-
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
-
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
-
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
-
When a bidder offers shareholders more than the current share price, the extra amount is called:
- a dividend
- a premium
- a tariff
- a royalty
-
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
-
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
-
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
-
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%
-
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
-
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
-
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
-
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
-
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
-
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
-
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
-
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%
-
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
-
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
-
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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