Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%. Market value of assets Face value of zero coupon debt Debt maturity Asset return standard deviation Company A $500 $500 4 years 50% The asset return standard deviation for the combined firm is 20%. How much more value will debtholders collectively receive after the merge(keep two decimal places)?
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- KT corporation has announced plans to acquire MJ corporation. KT is trading for $45 per share and MJ is trading for $25 per share, with a premerger value for MJ of $3 billion dollars. If the projected synergies from the merger are $750 million, what is the maximum exchange ratio that KT could offer in a stock swap and still generate a positive NPV? It is closest to: Answer choices: A) 0.75 B) 3.30 C) 2.25 D) 1.30Cake World is considering purchasing a competitor, Cupcake. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake's year4 cashflows are expected to grow at a constant rate of 6% after year 4. Cupcake's post merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. Compute for the maximum bid price that Cake World can offer in the acquisition.The NFF Corporation has announced plans to acquire LE Corporation. NFF is trading for $ 25 per share, and LE is trading for $ 29 per share, implying a pre-merger value of LE of approximately $ 7.3 billion. If the projected synergies are $ 1.27 billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV?
- A large manufacturing company has offered to purchase Composites, Inc. for$32 per share. Before the merger proposal announcement, Composites wastrading at $20/share and, after the announcement, its share price jumped up to$28/share. It is estimated that, if the merger fails to go through, the price ofComposites will drop to $15/share. a) Assuming that the risk-free interest rate is 0%, how would you describea long position in Composites as a combination of positions in a risk-freebond and a binary put option? Please show your workings in detial.b) Assuming that the risk-free interest rate is 0%, how would you describea long position in Composites as a combination of positions in a risk-freebond and a binary call option? Please show your workings in detial.c) Please explain the event-driven strategies through the selling insuranceview.Alpha is considering purchasing a competitor, Beta. Projected cash flows as a result of the merger are: Year 1 $1,450,000 Year 2 $1,750,000 Year 3 $2,000,000 Year 4 $2,500,000. In addition, Beta's year 4 cashflows are expected to grow at a constant rate of 6% after year 4. Beta's post merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. REQUIRED: 1. Compute for the maximum bid price that Alpha can offer in the acquisition. 2. How much is the net advantage/disadvantage to Alpha if it acquires Beta's 10,000,000 shares at the current market price of $9.The NFF Corp. has announced plans to acquirer LE Corp. NFF is trading for $35 per share and LE is trading for $25 per share, implying a pre-merger value of LE of approximately $4 billion. If the projected synergies are $1 billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV?
- Cake World is considering purchasing a competitor, Cupcake. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake's year4 cashflows are expected to grow at a constant rate of 6% after year 4. Cupcake's post-merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. Compute for the maximum bid price that Cake World can offer in the acquisitionCupp Cake is considering purchasing a competitor, ChocoMallow. Projected cash flows as a result of the merger are: Year1, P1,450,000; Year2, P1,750,000; Year3, P2,000,000; Year4, P2,500,000. In addition, Cupcake2's year4 cashflows are expected to grow at a constant rate of 6% after year 4. Cupcake's post merger beta is estimated to be 1.2 and its post-merger tax rate is 40%. The risk-free rate is 8% and the market risk premium is 4%. 1. What is the maximum bid price that Cup Cake can offer in the acquisition 2. How much is the net advantage/disadvantage to Cup Cake if it acquires ChocoMallow's 10,000,000 shares at the current market price of P9Pizza Palace (PP), is considering purchasing a smaller chain, Western Mountain Pizza. PP’s analysts expect the merger to result in incremental net cash flows as follows: Y1=$1,900,000, Y2 = $2,200,000, Y3 = $3,500,000, Y4 =$5,800,000. In addition, Western’s Y4 cash flows are expected to grow at a constant rate of 4% after Y4. Western’s post merger beta is expected to be 2 and its tax rate would be 30%. The risk free rate is presently 6% and the market risk premium is 5%. What is the value of Western to Pizza Palace?
- Suppose that Flight Centre has made an offer for Webjet that consists of the cash purchase of 1.4 million shares at $13 per share. The value of Webjet’s stock before the bid was made public was $11 per share. Flight Centre’s stock is trading at $20 per share, and there are 20 million shares outstanding. Flight Centre estimates that the merger synergy will be $3.5 million per year, forever. The appropriate discount rate for these gains is 12%. What is the estimated value of the Flight Centre post-merger?companies can borrow at an 8 percent interest rate. The risk-free rate is 6 percent, and the expected return on the market is 13 percent. Bryce believes the current cost of capital for Birdie Golf is 11 percent. The beta for Hybrid Golf stock at its current capital structure is 1.30.Bryce has asked you to analyze the financial aspects of the potential merger. Specifically, he has asked you to answer the following questions:1. Suppose Hybrid shareholders will agree to a merger price of $63.25 per share. Should Birdie proceed with the merger?2. What is the highest price per share that Birdie should be willing to pay for Hybrid?3. Suppose Birdie is unwilling to pay cash for the merger but will consider a stock exchange. What exchange ratio would make the merger terms equivalent to the original merger price of $63.25 per share?4. What is the highest exchange ratio Birdie would be willing to pay and still undertake the merger?Hastings Corporation is interested in acquiring Visscher Corporation. Assume that the riskfreerate of interest is 4%, and the market risk premium is 5%. Hastings estimates that if it acquires Visscher, the year-end dividendwill remain at $1.99 a share, but synergies will enable the dividend to grow at a constantrate of 7% a year (instead of the current 5%). Hastings also plans to increase the debt ratioof what would be its Visscher subsidiary; the effect of this would be to raise Visscher’s betato 1.05. What is the per-share value of Visscher to Hastings Corporation?
