3. Suppose you are the sole owner of company ABC. The market value of your company is$100 and there are 20 shares. Now you are thinking about acquiring the target companyXYZ with a standing alone market value of $50 with 25 shares outstanding. The synergyof the two companies is $20. We assume the cost of the merger is zero, meaning targetshareholders break even.a) Suppose you pay XYZ's shareholders in cash from your company ABC. What is thetotal firm value post-merger? What is the share price?b) Suppose you instead create new shares to pay XYZ's shareholders. How many sharesdo you need to create? How many shares do you need to pay for each share in XYZ?Instead of $20, in the remainder of the question, we assume the synergy is -$10.c) Redo part a) under the new synergy. Would you choose to acquire company XYZ? Discussyour finding in comparison with a).

When the combined value of entity is more than its individual added together, there is a synergy…

5. Suppose you are the sole owner of company ABC. The market value of your c $100 and there are 20 shares. Now you are thinking about acquiring the target XYZ with a standing alone market value of $50 with 25 shares outstanding. TI of the two companies is $20. We assume the cost of the merger is zero, meanir shareholders break even. a) Suppose you pay XYZ's shareholders in cash from your company ABC. Wh total firm value post-merger? What is the share price?

5. Suppose you are the sole owner of company ABC. The market value of your c $100 and there are 20 shares. Now you are thinking about acquiring the target XYZ with a standing alone market value of $50 with 25 shares outstanding. TI of the two companies is $20. We assume the cost of the merger is zero, meanir shareholders break even. a) Suppose you pay XYZ's shareholders in cash from your company ABC. Wh total firm value post-merger? What is the share price?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter23: Corporate Restructuring

Section: Chapter Questions

Problem 7P

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