CORPORATE FINANCE - CONNECT ACCESS
12th Edition
ISBN: 9781264054893
Author: Ross
Publisher: MCG
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Textbook Question
Chapter 29, Problem 7CQ
Economies of Scale What does it mean to say that a proposed merger will take advantage of available economics of scale? Suppose Eastern Power Co. and Western Power Co. arc located in different time zones. Both operate at 60 percent of capacity except for peak periods, when they operate at 100 percent of capacity. The peak periods begin at 9:00 a.m. and 5:00 p.m. local time and last about 45 minutes. Explain why a merger between Eastern and Western might make sense.
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Suppose the European Union (EU) is investigating a proposed merger between two of the largest distillers of premium Scotch liquor.
Based on some economists' definition of the relevant market, the two firms proposing to merge enjoyed a combined market share of
about two-thirds, while another firm essentially controlled the remaining share of the market. Additionally, suppose that the (wholesale
market elasticity of demand for Scotch liquor is -1.3 and that it costs $16.20 to produce and distribute each liter of Scotch.
Based only on these data, provide quantitative estimates of the likely pre- and postmerger prices in the wholesale market for premium
Scotch liquor.
Instruction: Do not round intermediate calculations. Enter your final responses rounded to the nearest penny (two decimal places).
Pre-merger price: $
Post-merger price: $1
Transfer Pricing; International Considerations; Strategy As indicated in the chapter, determining the appropriate transfer price in a multinational setting is a very complex problem, with multiple strategic considerations. Consider as an example a U.S. company with a subsidiary in Italy and asubsidiary in Ireland. The Italian subsidiary produces a product at a cost of $1,000 per unit. This unitis then sold to the Irish subsidiary, which adds $100 of cost to each unit. The unit is then shipped tothe U.S. parent company, which adds an additional $100 of cost to each unit. The unit is then sold to aU.S. customer for $2,000. Assume that the tax rate in Italy is 30%, the tax rate in Ireland is 15%, andthe tax rate in the United States is 35%.Required1. Define the term transfer price. Why is transfer pricing strategically important to organizations?2. What creates income tax planning opportunities when determining transfer prices in a multinational setting? Where could one go to obtain…
4. In case of an M&A between firm A and firm B. If the value of firm A=50M, firm B=40M, the expected synergies S=45 and
the integration/adaptation cost AC=15.
a. The expected net value generated by the M&A= 45
b. The expected total value of the new firm created after the M&A= 120
c. The expected net value of the new firm created after the M&A= 90
d. None of the above
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