EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 28, Problem 14P
Let’s reconsider part (b) of Problem 99. The actual premium that your company will pay for TargetCo will not be 20%, because on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover.
- a. What is the price per share of the combined corporation immediately after the merger is completed?
- b. What is the price of your company immediately after the announcement?
- c. What is the price of TargetCo immediately after the announcement?
- d. What is the actual premium your company will pay?
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For Question 1, 2, and 3, use the following information:
1.) Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.
Firm B
Firm T
Shares outstanding
6,500
1,500
Price per share
$
45
$
15
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $10,600.
If Firm T is willing to be acquired for $20 per share in cash, what is the NPV of the merger? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Please round to the nearest dollar and format as "X,XXX"
2.)
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.
Firm B
Firm T
Shares outstanding
6,500
1,500
Price per share
$
45
$…
The directors of Company XYZ wishes to make a big investment into a new project which will be financed by means of a rights issue. The directors expect the share price will decrease to values even lower than the theoretical ex-rights price. Explain the factors that would influence the share price after the rights issue.
Chapter 28 Solutions
EBK CORPORATE FINANCE
Ch. 28.1 - Prob. 1CCCh. 28.1 - Prob. 2CCCh. 28.2 - On average, what happens to the target share price...Ch. 28.2 - Prob. 2CCCh. 28.3 - What are the reasons most often cited for a...Ch. 28.3 - Prob. 2CCCh. 28.4 - Prob. 1CCCh. 28.4 - What do risk arbitrageurs do?Ch. 28.5 - Prob. 1CCCh. 28.5 - Prob. 2CC
Ch. 28.6 - Prob. 1CCCh. 28.6 - Prob. 2CCCh. 28 - What are the two primary mechanisms under which...Ch. 28 - Prob. 2PCh. 28 - What are some reasons why a horizontal merger...Ch. 28 - Prob. 4PCh. 28 - Prob. 5PCh. 28 - Prob. 6PCh. 28 - How do the carryforward and carryback provisions...Ch. 28 - Diversification is good for shareholders. So why...Ch. 28 - Your company has earnings per share of 4. It has 1...Ch. 28 - If companies in the same industry as TargetCo...Ch. 28 - Prob. 11PCh. 28 - Prob. 12PCh. 28 - Prob. 13PCh. 28 - Lets reconsider part (b) of Problem 99. The actual...Ch. 28 - ABC has 1 million shares outstanding, each of...Ch. 28 - Prob. 16PCh. 28 - How does a toehold help overcome the free rider...Ch. 28 - Prob. 18P
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