EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
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Question
Chapter 29, Problem 10QP
a.
Summary Introduction
To calculate:-The EPS of Firm A after the merger.
Merger:
Merger occurs when the shareholders of two or more companies pool the resources of their company into one separate legal entity and as a result a new company comes into existence. Merger is basically the result of merge the two or more companies into one.
Synergy:
Synergy is a state in which two or more companies are combined and perform better than the sum of their individual results in terms of productivity and revenue.
Purchase Accounting Method for Mergers:
In the purchase accounting method the assets of the targeted company has to be recorded into the current market value in the books of acquiring company and
Net present value is one of the techniques of capital budgeting. Net present value is used to find out the difference between the present value of
Price Earnings Ratio (PE ratio):
Price to earnings ratio is a ratio to calculate the share price related to net income earned by a firm per share annually.
Earnings per Share (EPS):
Earnings per share are a ratio to calculate the earning earned per share by the shareholders.
b.
Summary Introduction
To calculate:-Firm A’s price for a share after merger if the market wrongly analyzes this reported earnings growth.
c.
Summary Introduction
To calculate:-Price-earnings ratio of the post merger firm if the market correctly analyzes the transaction
d.
Summary Introduction
To calculate:-The share price of firm A after the merger if there is no synergy gain, to calculate the P/E ratio and to explain the share price is too high or too low
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Students have asked these similar questions
The following data are pertinent for companies A and B.
A B
Present Earnings Shs 20 million Shs 4 million
No of shares Sh10 million Sh 1 million
Price/earning ratio 18 10
(a) If the two companies were to merge and the exchange ratio were one share of Company A for
each share of Company B, what would be the initial impact on earnings per share of the two companies?
what is the market value exchange ratio? Is the merger likely to take place?
(b) If the exchange ratio were two shares of Company A for each share of Company B what would happen with respect to the above?
(c) If the exchange ratio were 1.5 shares of Company A for each share of Company B, what would
happen?
(d)What exchange ratio would you recommend?
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.
Shares outstanding
Price per share
Firm B Firm T
6,200
1,400
$ 48 $ 18
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is
$9,600. Firm T can be acquired for $20 per share in cash or by exchange of stock
wherein B offers one of its shares for every two of T's shares.
Are the shareholders of Firm T better off with the cash offer or the stock offer?
Cash offer is better
Share offer is better
At what exchange ratio of B shares to T shares would the shareholders in T be
indifferent between the two offers? (Do not round intermediate calculations and round
your answer to 4 decimal places, e.g., 32.1616.)
Exchange ratio
to 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
Price per share
6,000
1,200
$
47 $
17
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,500.
a. If Firm T is willing to be acquired for $19 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.)
b. What will the price per share of the merged firm be assuming the conditions in (a)? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c. If Firm T is willing to be acquired for $19 per share in cash, what is the merger premium? (Do not round
intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for…
Chapter 29 Solutions
EBK CORPORATE FINANCE
Ch. 29 - Prob. 1CQCh. 29 - Prob. 2CQCh. 29 - Prob. 3CQCh. 29 - Prob. 4CQCh. 29 - Prob. 5CQCh. 29 - Prob. 6CQCh. 29 - Economies of Scale What does it mean to say that a...Ch. 29 - Prob. 8CQCh. 29 - Prob. 9CQCh. 29 - Prob. 10CQ
Ch. 29 - Prob. 1QPCh. 29 - Prob. 2QPCh. 29 - Prob. 3QPCh. 29 - Prob. 4QPCh. 29 - Cash versus Stock Payment Penn Corp. is analyzing...Ch. 29 - EPS, PE, and Mergers The shareholders of Flannery...Ch. 29 - Prob. 7QPCh. 29 - Cash versus Stock as Payment Consider the...Ch. 29 - Prob. 9QPCh. 29 - Prob. 10QPCh. 29 - Prob. 11QPCh. 29 - Prob. 12QPCh. 29 - Prob. 13QPCh. 29 - Prob. 14QPCh. 29 - Prob. 15QPCh. 29 - Prob. 16QPCh. 29 - Prob. 1MCCh. 29 - Prob. 2MCCh. 29 - Prob. 3MCCh. 29 - Prob. 4MC
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