Parentis Ltd. has a value of $150million while the value of Sandis Ltd. is $70million. A merger between the two has just gone through and cost savings with a present value of $ 10million is expected to be achieved. Parentis Ltd. paid cash of $85million for the entire paid up capital of Company B. Required i. What is the value of the two firms after the merger? ii. Calculate the cost of the merger to the shareholders of Parentis Ltd. iii. What is the portion of the gain/loss due Parentis Ltd.’s shareholders? iv. From the perspective of the shareholders of Company A, is there an economic justification for the merger?

Parentis Ltd. has a value of $150million while the value of Sandis Ltd. is $70million. A merger between the two has just gone through and cost savings with a present value of $ 10million is expected to be achieved. Parentis Ltd. paid cash of $85million for the entire paid up capital of Company B. Required i. What is the value of the two firms after the merger? ii. Calculate the cost of the merger to the shareholders of Parentis Ltd. iii. What is the portion of the gain/loss due Parentis Ltd.’s shareholders? iv. From the perspective of the shareholders of Company A, is there an economic justification for the merger?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter23: Corporate Restructuring

Section: Chapter Questions

Problem 7P

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