Both of Firm A and Firm B are 100 equity firms. You estimate that the incremental value of the acquisition is $100,000. Firm B has indicated that it will agree to a sale if the price is $150,000, payable in cash or stock. Firm B is worth $100 as a stand-alone, so this is the minimum value that we could assign to Firm B. Calculate the value of firm A after merger. Firm A Firm B Price per share $2 $1 Number of shares 50,000 100,0000

Both of Firm A and Firm B are 100 equity firms. You estimate that the incremental value of the acquisition is $100,000. Firm B has indicated that it will agree to a sale if the price is $150,000, payable in cash or stock. Firm B is worth $100 as a stand-alone, so this is the minimum value that we could assign to Firm B. Calculate the value of firm A after merger. Firm A Firm B Price per share $2 $1 Number of shares 50,000 100,0000

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 9MC

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Both of Firm A and Firm B are 100 equity firms. You estimate that the incremental value of the acquisition is $100,000. Firm B has indicated that it will agree to a sale if the price is $150,000, payable in cash or stock. Firm B is worth $100 as a stand-alone, so this is the minimum value that we could assign to Firm B. Should Firm A acquire Firm B? Explain 2 reasons of mergers. Firm A Firm B Price per share $2 $1 Number of shares 50,000 100,0000
Kclub has market value of 680million and Gclub has marketvalue of 170 million. Mergerresult in cost savings of, 500, 000 a year forever. Costsavings will grow at 5% a year.Kclub proposes to buy Gclub for306 million. Payment will be intwo years. Cost of capital is30%. K has 100million shareaand G has 100million shares.Find: A. Present value of mergerB. Cost to shareholders of Kclubfrom merger C. Npvmergerto Kclub shareholders
ABC and XYZ have total equity values of P5,000,000 and P10,000,000 respectively. If they merged, a total of 30,000 P500-par value shares may be issued. Each share can provide investors a rate of return of 18%, a growth rate of 3% and annual dividends of P78 per share for the first year. What is the total value of synergy that the merger will provide?
The Stanley Shoppe Limited (SSL) wishes to acquire The Carlson Card Gallery for $400,000. The Carlson Card Gallery has 50,000 stocks outstanding which are currently quoted at $7 per share. Stanley expects the merger to provide incremental earnings of about $67,000 a year for 10 years. Ken Stanley, the CEO of SSL, has calculated the marginal cost of capital for this investment to be 10 percent. What is the benefit of the merger to the shareholders of The Carlson Card Gallery? Calculate the present value of the synergy of this merger. Estimate if any the benefit of the merger to the shareholders of Stanley Limited. Should the merger take place?
Firm B is willing to be acquired by firm A at a price of $16 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $180,000. Number of shares Firm A: 50000 Firm B: 80000 Price per share Firm A: $18.00 Firm B: $14.00 Debt A: $0 B: $0 What is the value of firm B to firm A?
The shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation. Information about each firm is given here: Bread Butter Price-earnings ratio 5.26 21.04 Shares outstanding 57,000 228,000 Earnings $ 205,000 $ 1,025,000 Bread's shareholders will receive one share of Butter stock for every five shares they hold in Bread. What will the EPS of Butter be after the merger? What will the PE ratio be if the NPV of the acquisition is zero?
Corporation A is deciding on an acquisition. Corporation A would buy all shares of corporation B, for a total of 500,000 shares of B. Currently, corporation B is expected to pay a constant dividend forever of $12 per share. The market price of B shares reflects these expectations, and the required rate of return is 4%. A can buy B shares at their current market price, and management expects to be able to exploit synergies between the two corporations and increase revenues. Thus, according to A’s management, if the acquisition takes place the dividend per share for next year is expected to be $12, but dividends are then expected to grow forever at a rate of 3% per year. The required rate of return on stock B would stay unchanged at 4%. What is the NPV of the acquisition? .
Allan Corporation would like to purchase 60% of Mark Corporation in an acquisition. If Allan pushes through with this, the total equity value of Mark will be as follows: There are 100,000 shares outstanding while the current market value of the 60% of the shares outstanding is P1,800,000. *What is the maximum premium raid price that Allan can set?
. Hannahs is considering the acquisition of Shoe Clinic. . Hannahs has 43,000 shares outstanding at a market price of $32 a share. Shoe Clinic has 12,800 shares outstanding priced at $44 a share. The acquisition is expected to create $5,400 of synergy. What is the maximum amount of cash Hannahs should pay for this acquisition?
Denali Inc. is acquiring Whitney Corp. at an exchange ratio of 2:1. After the deal is announced, Denali’s stock price is $25 and Whitney’s stock price is $47. Create a trade that would take advantage of the merger arbitrage opportunity, starting with 100 shares of Whitney’s stock. Show in detail the profit from your portfolio if between today and the deal being completed, Denali’s stock price falls to $20.
Gobi Desserts is bidding to take over Universal Puddings. Gobi has 3,500 shares outstanding, selling at $55 per share. Universal has 2,500 shares outstanding, selling at $22.50 a share. Gobi estimates the economic gain from the merger to be $22,500. Required: If Universal can be acquired for $25 a share, what is the NPV of the merger to Gobi? What will Gobi sell for when the market learns that it plans to acquire Universal for $25 a share? (Round your answer to 2 decimal places.) What will Universal sell for? Assume that the market expects the merger to go through without any further bidding. What are the percentage gains to the shareholders of each firm? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Now suppose that the merger takes place through an exchange of stock. On the basis of the premerger prices of the firms, Gobi sells for $55, so instead of paying $25 cash, Gobi issues 0.45 of its shares for every Universal share acquired. What will be…
Consider the following information about Firm A and Firm T: Item Firm A (Aquiring Firm Firm T (Target Firm Price/share $20 $15 Outstanidng shares 50 25 Total market value $1,000.00 $375 Total cost of the acquisition is $500.00 and the merger is estimated to create a synergistic gain of $700.00. What is the merger premium? Select one: a. $135.00 b. $125.00 c. $175.00 d. $150.00