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?
A)$45.00
B)$46.57
C)$45.08
D)$44.92
E)$44.83

Accepted Answer

First, we need to determine the total value of JLM's shares:

7,400 shares x $18 per share = $133,200

Next, we need to determine the number of shares of Hi-Tek that will be issued to purchase JLM:

$135,000 / $45 per share = 3,000 shares

Now we can calculate the total value of the merged company:

Hi-Tek's pre-merger value: 36,000 shares x $45 per share = $1,620,000
JLM's pre-merger value: $133,200
Synergy value: $5,000

Total post-merger value: $1,758,200

To find the post-merger value per share, we divide the total value by the new total number of shares:

(36,000 + 7,400) + 3,000 = 46,400 shares

Post-merger value per share: $1,758,200 / 46,400 shares = $37.82 per share

However, we also need to add in the $5,000 in synergy value to the total post-merger value:

$1,758,200 + $5,000 = $1,763,200

Now we recalculate the post-merger value per share:

$1,763,200 / 46,400 shares = $38.02 per share

Since Hi-Tek shares are selling for $45 per share, this represents a premium of $7.98 per share for JLM shareholders.

Therefore, the correct answer is C) $45.08.

Question 2

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?
A)$14,000
B)$17,000
C)−$14,000
D)−$17,000
E)−$12,000

Accepted Answer

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

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?
A)$3,218,100
B)$3,482,800
C)$3,356,200
D)$3,220,000
E)$3,298,000

Accepted Answer

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

Question 4

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?
A)$7,000
B)$4,500
C)−$6,000
D)$9,500
E)−$13,000

Accepted Answer

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

Question 5

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?
A)−$790
B)$3,511
C)$2,503
D)$2,214
E)$3,000

Accepted Answer

The answer of New Tech has a market value of...

Question 6

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 ________.
A)$1,215,000; $43.78
B)$1,865,500; $44.06
C)$1,240,000; $42.89
D)$1,040,000; $44.06
E)$1,175,500; $43.78

Accepted Answer

The postmerger value is the sum of the market values of both companies plus the synergy: $187,000 + (22,500 * $43) + $21,000 = $1,175,500. The postmerger price per share is the postmerger value divided by the total number of shares after the merger: $1,175,500 / (22,500 + 4,350) = $43.78.

Question 7

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?
A)−$11,407
B)$24,608
C)$14,136
D)$19,600
E)$5,701

Accepted Answer

First, we need to calculate the value of the 9,200 shares of Creative Pottery stock that will be exchanged for The Glass Works. This is calculated as:

Value of Creative Pottery stock = Number of shares × Price per share
Value of Creative Pottery stock = 9,200 × $37
Value of Creative Pottery stock = $340,400

Next, we need to calculate the net present value (NPV) of the acquisition taking into account the synergy:

NPV = Value of The Glass Works + Value of Synergy - Value of Creative Pottery stock
NPV = $336,000 + $24,000 - $340,400
NPV = -$401

Since the NPV is negative, the acquisition is not financially attractive and is expected to decrease shareholder value. Therefore, the best choice is C, which corresponds to a negative NPV of $401.

Question 8

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?
A)$33.39
B)$33.00
C)$29.97
D)$29.42
E)$28.15

Accepted Answer

The post-merger value is calculated by adding the market values of both companies and the synergy, then dividing by the total number of shares post-merger. Wilson's value is 6,000 * $19 = $114,000. Neilsen's value is 22,000 * $33 = $726,000. The total value post-merger is $114,000 + $726,000 + $11,000 = $851,000. Neilsen's is acquiring Wilson's for $115,005 worth of stock, which means they issue $115,005 / $33 = 3,485 additional shares. The total number of shares post-merger is 22,000 + 3,485 = 25,485. The post-merger value per share is $851,000 / 25,485 = $33.39.

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.
A)$764,400
B)$1,098,900
C)$1,189,400
D)$718,400
E)$968,900

Accepted Answer

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

Quiz 21: Mergers and 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?

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?

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?

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.