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Business combination
Business combination refers to a transaction by which a company acquires majority of shares of another company and obtains the control of other company.
To explain:Impact of stock exchanges on business combination transactions (mergers and acquisitions) in 1990s.
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Mergers
Merger is a process in which two existing companies go into liquidation and one new company is formed to manage their operations.
Business combinations
Business combination refers to a transaction by which a company acquires majority of shares of another company and obtains the control of other company.
The factors that impacted the mergers completed in 2000s. Difference between the business combinations of 2000s and 1990s and reason of less mergers in 2008.
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Corporate mergers
Merger is a process in which two existing companies go into liquidation and one new company is formed to manage their operations.
Whether the decision to offer more tax incentives in mergers is wise or unwise and three different tax incentives.
4
Mergers: Merger is a process in which two existing companies go into liquidation and one new company is formed to manage their operations.
Actions that can promote mergers.
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ADVANCED FINANCIAL ACCOUNTING-ACCESS
- 4. Merger valuation and discounted cash flows When a merger takes place between two companies to form a single firm, the target company to operate as a separate identity. Consider the following scenario: Three Waters Co. is considering an acquisition of Zebra Engineering Corp. (ZEC), and estimates that acquiring ZEC will result in incremental after-tax net cash flows in years 1-3 of $19.00 million, $28.50 million, and $34.20 million, respectively. After the first three years, the incremental cash flows contributed by the ZEC acquisition are expected to grow at a constant rate of 3% per year. Three Waters's current beta is 0.40, but its post-merger beta is expected to be 0.52. The risk-free rate is 3.5%, and the market risk premium is 5.60%. Based on this information, complete the following table by selecting the appropriate values (Note: Do not round intermediate calculations, but round your answers to two decimal places): Value Post-merger cost of equity Projected value of the cash…arrow_forward21. Which of the following are generally true about wealth gains or losses to stockholders following a merger? A. Stockholders of the target firm have zero or negative wealth gains B. Stockholders of the acquiring firm have zero or negative wealth gains C. Stockholders of competing firms have zero or negative wealth gains D. Stockholders of the target firm have positive wealth gains E. Both B and D 22. Empirical research about the method payment for mergers has shown that A. Returns for acquiring firm stockholders are much lower when cash is used for payment B. Returns for target firm stockholders are much lower when cash is used for payment C. Returns for competing firms are much lower when cash is used for payment D. Returns for acquiring firm stockholders are much higher when cash is used for payment E. None of the above 23. If a firm wishes to expand geographically, it is often preferable to do it by acquiring an existing firm rather than greenfield entry, because A. The…arrow_forwardThe form of corporate restructuring in which a small group of investors raises loan financing to purchase all the equity shares of a public company is called Select one: a. a privatization. b. a leveraged buyout. c. an indenture. d. a debenture. e. a reorganization.arrow_forward
- Hello, could you please answer the following question in details. Thank you very much! Are the following statements true or false? Justify your answer. Mergers inspired by vertical integration motives are very rare nowadays, as transaction costs have decreased substantially since the second merger wave. “It is always advisable for a company to diversify its activities, in order to limit the risk of being too exposed to one activity”arrow_forwardWith respect to Microsoft’s acquisitions, Skype and Nuance, discuss the strategic benefits expected to accrue under the following sub-headings: product development speed to market risk market power competitive scope barriers to entry diversification The Case From humble beginnings in Gates’s family garage, Microsoft has grown to exceed $77.85 billion of revenue in 2013 and offer a product line extending from gaming (Xbox) and Internet services (Internet Explorer and Bing) to mobile devices (Windows Phones). In 2011, Microsoft diversified its product line yet again through acquiring Skype Global for $8.5 billion in cash. Although Microsoft had previously ventured into the Internet communications industry with Windows Live Messenger, Skype offered Microsoft broader device support, mobile video calling, and access to over 170 million Skype users, potential new clients for Microsoft’s existing products. Microsoft considered Skype a valuable acquisition due to the strategic fit between…arrow_forwardMany firms begin global expansion by moving from less risky venturesinitially to riskier ventures in later years. Which of the following globalentry strategy progressions would characterize that type of evolution?arrow_forward
- 3. Merger valuation and discounted cash flows When a merger takes place between two companies to form a single firm, the target company does not continue identity. Consider the following scenario: continues does not continue to operate as a separate Newtown Propane Inc. is considering an acquisition of Pirtucon Co., and estimates that acquiring Pirtucon will result in incremental after- tax net cash flows in years 1-3 of $5 million, $7.5 million, and $9 million, respectively. After the first three years, the incremental cash flows contributed by the Pirtucon acquisition are expected to grow at a constant rate of 5% per year. Newtown's current beta is 0.80, but its post-merger beta is expected to be 1.04. The risk-free rate is 4.5%, and the market risk premium is 6.60%. Based on this information, complete the following table by selecting the appropriate values. (Note: Round your intermediate calculations to two decimal places.) Post-merger cost of equity Projected value of the cash…arrow_forwardAll of the following are factors contributing to the internationalization of the subject of accounting except the increasing number of cross-border mergers and acquisitions O a. O b. the phenomenon of global competition O C. growth and spread f multinational operations around the world O d. the competition in the localmarketarrow_forwardInternational integration in capital markets: 1. Started with the Bretton Woods agreements but then decreased after 1971. 2. Was prohibited by GATT since 1950. 3. Mainly increased since the 1970s. 4. Decreased up to today from their high levels in the early 1950s. 5. Increased, but only after 2000 and not before O 1 4 5.arrow_forward
- Empirical evidence suggests that IPO issues are generally: priced efficiently by the market. overpriced by investor excitement concerning a new issue. underpriced resulting from SEC regulation. underpriced, in part, to facilitate the issue. overpriced resulting from SEC regulation.arrow_forwardSuppose you are the CEO of a large firm in a service business and you think that by acquiring a certain competing firm, you can generate growth and profits at a greater rate for the combined firm. Youhave asked some financial analysts to study the proposed acquisition/merger. Do you think valuechain analysis would be useful to them? Why or why not?arrow_forwardInitial Public Offering (IPO) - In the chapter we are provided with an example of the Industrial and Commercial Bank of China offering shares of their corporation to the public. The biggest pro of a firm based in Mexico taking this route, would be the gain of capital. A con that comes with this is a loss of control of your company. IF you were to lose majority control over your business, this could have potentially catastrophic impacts. The Global Bond Market - "Companies will issue international bonds if they believe it will lower their cost of capital" Foreign bonds - On the pro side of foreign bonds, the firm can raise capital in foreign currencies. This opens up more potential investors to the firm. A con of foreign bonds would be the exposure of foreign exchange risk. Foreign exchange risk can be risky, and if the Mexican peso depreciates significantly on the foreign exchange market, this could potentially crush the Mexican capital market. Eurobonds - Eurobonds are another and…arrow_forward
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