assignment 7
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Problem 30.3 12 points
Consider the following premerger information about Firm A and Firm B:
Assume that Firm A acquires Firm B via an exchange of stock at a price of $24 for each share of
B's stock. Both A and B have no debt outstanding.
a.
What will the earnings per share, EPS, of firm A be after the merger? 2 points
Total Cost of B = $24 * 280 = $6720
Cost of B in A Stock = $6720 / 45 = 149.33 shares
Shares Outstanding After Merger = 149.33 + 590 = 739.33
Total Earnings After Merger = $940 + $630 = $1570
EPS after Merger = $1570 / 739.33 =
$2.12
b.
What will firm A ’s price per share be after the merger if the price–earnings ratio does not
change? 3 points.
If the
price–earnings ratio remains at 28.24, then firm A ’s price per share will be $59.98.
P/E ratio = 28.24
EPS = 1570/739.33 = 2.12
Price per Share = 28.24*2.12 = $ 59.98
c.
i.
If there are no synergy gains, what will the share price of A be after the merger? 3
points
Firm value with no synergy gains = $26,550 + $5,600 = $32,150
Price per share of A after merger = $32,150/739.33 = $43.49
ii.
If there are no synergy gains, what will the price–earnings ratio be? 2 points
P/E ratio = $43.49 / $2.12 = 20.48
iii.
What does your answer for the share price tell you about the amount A bid for B ?
Was it too high? Too low? Explain. 2 points
Firm A is bidding a premium of 20% ((24-20)/20). Assuming there are no synergy
gains, the shareholders of the acquiring firm are losing (share price falls from $45 to
$43.49). Therefore, the bid is too high.
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Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T).
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c. If Firm T is willing to be acquired for $19 per share in cash, what is the merger premium? (Do not round
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d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for…
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QUESTION 17
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If Firm T is willing to be acquired for $16 per share in cash, what is the merger
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d.
Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of
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Problem 4
Beta Co. currently has 1 million shares outstanding each selling for $50. It is
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value would remain constant after the split.
1. What is the Beta's expected price after the split?*
3 pomts
O a. $75 per share
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Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.
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If Firm T is willing to be acquired for $21 per share in cash, what is the NPV of the merger?
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What will the price per share of the merged firm be assuming the conditions in (a)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.
If Firm T is willing to be acquired for $21 per share in cash, what is the merger premium?
d.
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elizabeth eaarns $9.50 a share, sells for $90, and pays a $6 per sharedeviden. the stock is split two for one and a $3 pers share cash dividend is diclared.
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Question 4 (5 points)
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OA) 4.27%
O B) 5.98%
O c) 5.50%
OD) 5.09%
E) 5.86%
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A 42.
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6
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5
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Suppose that the market price of Company A is $50 per share and that of Company B is $20. If A offers half a share of common stock for each share of B, what is the percentage increase in wealth for B's shareholders? (Assume that the offer has no effect on the value of A's shares.)
+25 percent
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Current Attempt in Progress
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Proceeds to issuer
24
Proceeds to underwriting
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What is the rate of return when 25 shares of Stock
A, purchased for $30/share, are sold for $825? The
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Plz correct solution.
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What effect will a two-for-one stock split have on the following items found on a firm's financial statements?
a. Earnings per share $5.00. Round your answer to the nearest cent.
Initial amount
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$
b. Total equity $10,000,000. Round your answer to the nearest dollar.
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Effect
$
New amount
Effect
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$4,600,000
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Effect
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New amount
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Effect
New amount
Initial amount
$1,689,000
e. Number of shares outstanding 800,000. Round your answer to the nearest whole number.
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800,000
f. Earnings $4,000,000. Round your answer to the nearest dollar.
Effect
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-Select-
-Select-
Effect
-Select-
-Select-
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Bb.9.
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Single infinite stage
Michelle wants to value the stock of Gamma Corporation and gathers the following information:
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. Current book value per share
$94
$46
•
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18%
•
Perpetual growth rate
2%
•
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12%
Which
a. The value of the company's according to a single stage RI model is closest to:
$ Number
Round your answer to the nearest cent.
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4
XYZ stock price and dividend history are as follows:
Beginning-of-
Year
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Dividend Paid at
Year-End
2018
$ 120
$ 2
2019
129
2
2020
pints
2021
2
2
115
120
An investor buys six shares of XYZ at the beginning of 2018, buys another two shares at the beginning of 2019, sells one share at the
beginning of 2020, and sells all seven remaining shares at the beginning of 2021.
Required:
a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
× Answer is complete but not entirely correct.
Arithmetic time-weighted average returns
Geometric time-weighted average returns
1.99
%
1.59%
b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021.
(Negative amounts should be indicated by a minus sign.)
Answer is complete but not entirely correct.
Date
01/01/2018
Cash Flow
$
(720)
Return to ques
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7
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Raysut Cement has a preferred share issue
outstanding with a current price of OMR 26.
The firm is expected to pay a dividend of
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What is the firm's cost of preferred equity?
Select one:
O a. None of these
O b. 7
О с. 11
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