Company A is considering the acquisition of Company B, and intends to finance this potential acquisition using only retained cash. Consider the information in Table 2 about Companies A and B, expected synergies from the acquisition and price asked by Company B's shareholders to sell their company. Table 2 A B Current market value (€) Number of shares Expected synergies from 700 420 100 40 acquisition (€) 80 Value asked by Company B's shareholders (€ ) 560 To answer the following questions make plausible assumptions if necessary. a. What is the expected combined value after acquisition? Explain your answer. b. Should A acquire B by €560? Explain your answer. c. Consider the scenario where Company A decides to finance the acquisition with equity instead of cash. What would be the optimal exchange ratio of Company A v ersus Company B shares? Explain your answer.

Company A is considering the acquisition of Company B, and intends to finance this potential acquisition using only retained cash. Consider the information in Table 2 about Companies A and B, expected synergies from the acquisition and price asked by Company B's shareholders to sell their company. Table 2 A B Current market value (€) Number of shares Expected synergies from 700 420 100 40 acquisition (€) 80 Value asked by Company B's shareholders (€ ) 560 To answer the following questions make plausible assumptions if necessary. a. What is the expected combined value after acquisition? Explain your answer. b. Should A acquire B by €560? Explain your answer. c. Consider the scenario where Company A decides to finance the acquisition with equity instead of cash. What would be the optimal exchange ratio of Company A v ersus Company B shares? Explain your answer.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter23: Corporate Restructuring

Section: Chapter Questions

Problem 7P

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