GEN CMB ADV FINCL ACCT; Connect Access Card
11th Edition
ISBN: 9781259546648
Author: Theodore E. Christensen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 1, Problem 1.5C
Risks Associated with Acquisitions
Not all business combinations are successful, and many entail substantial risk. Acquiring anothercompany may involve a number of different types of risk. Obtain a copy of the 10-K report forAlphabet Inc. (parent company ofGoogle Inc.) for the year ended December 31, 2016 available atthe SEC’s website (www.sec.gov). The report also can be accessed through Yahoo! Finance or thecompany’s Investor Relations page.
Required
On pages 9-10 of the 10-K report, Alphabet provides information to iwes1ors about its motivationfor acquiring companies and the possible risks associated with such acquisitions. Briefly discussthe risks that Google sees inherent in potential acquisitions
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ABC Co. is contemplating on acquiring XYZ Inc. The following information was gathered through a diligence audit:
The actual earnings of XYZ, Inc. for the past 5 years are shown below:
Year
Earnings
2015
2,400,000
2016
2,600,000
2017
2,700,000
2018
2,500,000
2019
3,600,000
Total
13,800,000
Earnings in 2019 included an expropriation gain of ₱800,000.
The fair value of XYZ net assets as of the end of 2019 is ₱20,000,000.
The industry average rate of return is 12%.
Probable duration of “excess earnings” is 5 years.
How much is the estimated goodwill under the capitalization of average earnings method? Use a capitalization rate of 12.5%.
How much is the estimated goodwill under the present value of average excess earnings method? Use a discount rate of 10%.
ABC Co. is contemplating on acquiring XYZ Inc. The following information was gathered through a diligence audit:
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Year
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2015
2,400,000
2016
2,600,000
2017
2,700,000
2018
2,500,000
2019
3,600,000
Total
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Probable duration of “excess earnings” is 5 years.
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(i) On April 28, 2008, Mars Inc. announced that it had reached an agreement to merge with Wrigley Corporation for $23 billion in cash. While mergers among competitors are not unusual, the deal's highly leveraged financial structure was uncommon in transactions of this type. Almost 90 percent of the purchase price would be financed through borrowed funds.
What is the name of the deal structure Mars was using to acquire Wrigley? Briefly discuss two disadvantages of this type of deal structure.
Chapter 1 Solutions
GEN CMB ADV FINCL ACCT; Connect Access Card
Ch. 1 - What types of circumstances would encourage...Ch. 1 - How would the decision to dispose of a segment of...Ch. 1 - Prob. 1.3QCh. 1 - Prob. 1.4QCh. 1 - Prob. 1.5QCh. 1 - Prob. 1.6QCh. 1 - Prob. 1.8QCh. 1 - Prob. 1.9QCh. 1 - Prob. 1.10QCh. 1 - Prob. 1.11Q
Ch. 1 - Prob. 1.12QCh. 1 - Prob. 1.13QCh. 1 - Prob. 1.14QCh. 1 - Prob. 1.15QCh. 1 - Within the measurement period following a business...Ch. 1 - Prob. 1.17QCh. 1 - Prob. 1.1CCh. 1 - Prob. 1.3CCh. 1 - Prob. 1.4CCh. 1 - Risks Associated with Acquisitions Not all...Ch. 1 - Prob. 1.8CCh. 1 - Prob. 1.1.1ECh. 1 - Prob. 1.1.2ECh. 1 - Prob. 1.1.3ECh. 1 - Multiple-Choice Questions on Complex Organizations...Ch. 1 - Prob. 1.1.5ECh. 1 - Prob. 1.2.1ECh. 1 - Prob. 1.2.2ECh. 1 - Multiple-Choice Questions on Recording Business...Ch. 1 - Prob. 1.2.4ECh. 1 - Multiple-Choice Questions on Recording Business...Ch. 1 - Multiple-Choice Questions on Reported Balances...Ch. 1 - Multiple-Choice Questions on Reported Balances...Ch. 1 - Prob. 1.3.3ECh. 1 - Prob. 1.3.4ECh. 1 - Prob. 1.4.1ECh. 1 - Prob. 1.4.2ECh. 1 - Prob. 1.4.3ECh. 1 - Prob. 1.4.4ECh. 1 - Prob. 1.4.5ECh. 1 - Prob. 1.5ECh. 1 - Prob. 1.6ECh. 1 - Prob. 1.7ECh. 1 - Prob. 1.8ECh. 1 - Prob. 1.9ECh. 1 - Prob. 1.10ECh. 1 - Prob. 1.11ECh. 1 - Goodwill Recognition Spur Corporation reported the...Ch. 1 - Acquisition Using Debentures Planter Corporation...Ch. 1 - Bargain Purchase Using the data resented in E1-13,...Ch. 1 - Prob. 1.15ECh. 1 - Prob. 1.16ECh. 1 - Prob. 1.17ECh. 1 - Prob. 1.18ECh. 1 - Prob. 1.19ECh. 1 - Prob. 1.20ECh. 1 - Prob. 1.21ECh. 1 - Prob. 1.22ECh. 1 - Prob. 1.23ECh. 1 - Prob. 1.24PCh. 1 - Prob. 1.25PCh. 1 - Prob. 1.26PCh. 1 - Prob. 1.27PCh. 1 - Prob. 1.28PCh. 1 - Prob. 1.29PCh. 1 - Prob. 1.30PCh. 1 - Prob. 1.31PCh. 1 - Prob. 1.32PCh. 1 - Prob. 1.33PCh. 1 - Prob. 1.34PCh. 1 - Prob. 1.35PCh. 1 - Business Combination Following are the balance...Ch. 1 - Prob. 1.37PCh. 1 - Prob. 1.38PCh. 1 - Prob. 1.39PCh. 1 - Prob. 1.40P
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