1. What advantages were to be derived through the consolidation of the New York Central Lines? (pp. 548-554.)

2. What other reasons prompt business enterprises to combine?

3. What are some of the disadvantages of combination as shown by the Starch Consolidations. (See Dewing, Corporate Promotions and Reorganizations.) Can you suggest any other disadvantages?

4. Corporation A has powers X, Y and Z. Corporation B has powers X and Y. May they consolidate? (B. C. L. of N. Y., Sec. 7; N. J., Sec. 104-109; see also 75 N. J. Eq., p. 229, and Dewing, Corporate Promotions and Reorganizations, p. 44.)

5. Briefly discuss the three methods of distributing securities in the formation of consolidations. (See Political Science Quarterly, Vol. 30, pp. 277-300.)

6. Three corporations, A, B and C, call upon you to draw up a financial plan for their consolidation. The balance sheets, together with the net earnings, of the three companies are as follows:

Assets

Co. A

Co. B

Co. C

Plants.......................

$300,000

$180,000

$80,000

Materials and supplies.........

100,000

20,000

20,000

Accounts receivable .........................

80,000

60,000

40,000

Cash..................................................

20,000

10,000

10,000

$500,000

$270,000

$150,000

Liabilities

Accounts Payable .............................

$70,000

$30,000

$20,000

Capital

350,000

200,000

100,000

Surplus .....................

80,000

40,000

30,000

$500,000

$270,000

$150,000

Average annual net income.....

$32,000

$36,000

$48,000

Assume that a fair rate of return in this business is 8 per cent; that each company will take care of its own indebtedness with its own current assets, and that the necessary working capital will be raised by the sale of 5 per cent bonds. Draw up a memorandum of consolidation showing the kinds of securities that are to be issued by the consolidated company, the distribution of them, and the increase or decrease in income to the stockholders of each company.

(a) Allow nothing for economies of consolidation, except that the company will pay interest on the bonds out of expected earnings. Divide the stock partly on the basis of gcod will and partly on the basis of assets.

(b) Allow nothing for economies of consolidation. Base the distribution of securities exclusively on earning power.

(c) Assume that the consolidated company will be able to earn interest on the bonds and $20,000 more than total earnings of the three separate companies and that these increased earnings will be due to the good management of the better concerns extending over the poorer concerns.

(d) Assume that the consolidated company will be able to earn interest on the bonds and $20,000 more than total earnings of the three separate companies and that these increased earnings will be due to the increase of assets. (See pp. 276-280 of first edition, pp. 346-351 of second edition, Cole's Accounts, Their Construction and Interpretation.

7. Explain the purposes of the various clauses in the agreement on pp. 538 to 541.

8. Company A has outstanding $1,000,000 stock, $500,000 bonds and $200,000 unsecured debts; Company B has outstanding $2,000,-000 stock, $750,000 bonds and $100,000 unsecured debts. They consolidate into Company X, which exchanges its stock for the stock of Companies A and B, share for share. Company X then issues Consolidated First Mortgage Bonds amounting to $1,000,000, and incurs trade debts amounting to $300,000. Suppose none of the debts of Company A and Company B or Company X have been paid. By diagram and explanation, show what are the respective rights of the various creditors, bondholders and stockholders of the various properties. (B. C. L. of N. Y., Sec. 11; N. J., Sec. 107.)