Question 1

JLM has 7,400 shares of stock outstanding at a market price per share of $18.Hi-Tek has 36,000 shares outstanding that sell for $45 a share.By merging,$5,000 of synergy can be created.Hi-Tek is acquiring JLM for $135,000 worth of Hi-Tek stock.What is the postmerger value per share?

Accepted Answer

Number of shares needed for the acquisition = $135,000 / $45 = 3,000 shares Number of postmerger shares = 36,000 + 3,000 = 39,000 shares V_AB = (7,400 × $18)+ (36,000 × $45)+ $5,000 = $1,758,200 Postmerger share value = $1,758,200 / 39,000 = $45.08

Question 2

Racing Motors has a market value of $187,000.PJ Racing has 22,500 shares of stock outstanding at a price per share of $43.PJ Racing is acquiring Racing Motors in an exchange for 4,350 shares of PJ Racing stock.The merger is expected to create $21,000 of synergy.The postmerger value of the firm will be ________ and the postmerger price per share will be ________.

Accepted Answer

Number of postmerger shares = 22,500 + 4,350 = 26,850 shares V_AB = $187,000 + (22,500 × $43)+ $21,000 = $1,175,500 Postmerger share value = $1,175,500 / 26,850 = $43.78

Question 3

Global Network has a market value of $713,000.AG Communications has 46,700 shares of stock outstanding at a price per share of $56.AG is acquiring Global in an exchange for 13,500 shares of AG stock.The merger is expected to create $28,000 of synergy.What will be the postmerger value of the firm?

Accepted Answer

V_AB = $713,000 + (46,700 × $56)+ $28,000 = $3,356,200

Question 4

Wilson's has 6,000 shares of stock outstanding at a market price per share of $19.Neilsen's has 22,000 shares outstanding that sell for $33 a share.By merging,$11,000 of synergy can be created.Neilsen's is acquiring Wilson's for $115,005 worth of Neilsen stock.What is the postmerger value per share?

Accepted Answer

Number of shares needed for the acquisition = $115,005 / $33 = 3,485 shares Number of postmerger shares = 22,000 + 3,485 = 25,485 shares V_AB = (6,000 × $19)+ (22,000 × $33)+ $11,000 = $851,000 Postmerger share value = $851,000 / 25,485 = $33.39

Question 5

The Glass Works has a market value of $336,000.Creative Pottery has 23,800 shares of stock outstanding at a price per share of $37.Creative Pottery is acquiring The Glass Works in exchange for 9,200 shares of Creative Pottery stock.The merger is expected to create $24,000 of synergy.What is the NPV of the acquisition?

Accepted Answer

Number of postmerger shares = 25,000 + 8,00023,800 + 9,200 = 33,000 shares V_AB = $336,000 + (23,800 × $37)+ $24,000 = $1,240,600 Postmerger share value = $1,240,600 / 33,000 = $37.5939 NPV of acquisition = $336,000 + $24,000 − (9,200 × $37.5939)= $14,136

Question 6

Firm A has a market value of $318,000 while Firm B's market value is $69,000.Firm A just acquired Firm B for $75,000 cash.What is the net present value of the acquisition if the merger creates $15,500 of synergy?

Accepted Answer

NPV = $69,000 + $15,500 − $75,000 = $9,500

Question 7

Carlisle's Market has a market value of $789,000 while World's market value is $213,000.Carlisle's just acquired World for $225,000 cash.What is the net present value of the acquisition if the merger creates $26,000 of synergy from cost efficiencies?

Accepted Answer

NPV = $213,000 + $26,000 − $225,000 = $14,000

Question 8

New Tech has a market value of $452,000.Emerson Electrics has 37,000 shares of stock outstanding at a price per share of $21.Emerson Electrics is acquiring New Tech in exchange for 21,500 shares of Emerson Electrics stock.The merger is expected to create $3,000 of synergy.What is the acquisition net present value?

Accepted Answer

Number of postmerger shares = 37,000 + 21,500 = 58,500 shares V_AB = $452,000 + (37,000 × $21)+ $3,000 = $1,232,000 Postmerger share value = $1,232,000 / 58,500 = $21.0598 Cost of acquisition = 21,500 × $21.0598 = $452,786 NPV of acquisition = $452,000 + $3,000 − $452,786 = $2,214

Question 9

Al's Market has a market value of $418,900.Liza's has a market value of $724,500.Liza's believes it can create $46,000 of synergy if it acquires Al's for $425,000 in cash.What is the value of the firm following the merger? Assume both firms are all-equity financed.

Accepted Answer

V_AB = $418,900 + $724,500 + $46,000 − $425,000 = $764,400

Quiz 21: Mergers Amcq Acquisitions Web Only

JLM has 7,400 shares of stock outstanding at a market price per share of $18.Hi-Tek has 36,000 shares outstanding that sell for $45 a share.By merging,$5,000 of synergy can be created.Hi-Tek is acquiring JLM for $135,000 worth of Hi-Tek stock.What is the postmerger value per share?

Global Network has a market value of $713,000.AG Communications has 46,700 shares of stock outstanding at a price per share of $56.AG is acquiring Global in an exchange for 13,500 shares of AG stock.The merger is expected to create $28,000 of synergy.What will be the postmerger value of the firm?

Firm A has a market value of $318,000 while Firm B's market value is $69,000.Firm A just acquired Firm B for $75,000 cash.What is the net present value of the acquisition if the merger creates $15,500 of synergy?

Carlisle's Market has a market value of $789,000 while World's market value is $213,000.Carlisle's just acquired World for $225,000 cash.What is the net present value of the acquisition if the merger creates $26,000 of synergy from cost efficiencies?

Al's Market has a market value of $418,900.Liza's has a market value of $724,500.Liza's believes it can create $46,000 of synergy if it acquires Al's for $425,000 in cash.What is the value of the firm following the merger? Assume both firms are all-equity financed.