Question 1

The Sligo Co.is planning on merging with the Thorton Co.Sligo will pay Thorton's stockholders the current value of their stock in shares of Sligo.Sligo currently has 2,300 shares of stock outstanding at a market price of $20 a share.Thorton has 1,800 shares outstanding at a price of $15 a share.How many shares of stock will be outstanding in the merged firm?

Accepted Answer

First, calculate the total value of Thorton's shares: 1,800 shares * $15/share = $27,000. Then, determine how many shares of Sligo this equates to: $27,000 / $20/share = 1,350 shares. Add the original Sligo shares to the new shares issued to Thorton's shareholders: 2,300 shares + 1,350 shares = 3,650 shares.

Question 2

Firm V was worth $500 and Firm A had a market value of $400.Firm V acquired Firm A for $450 because they thought the combination of the new Firm VA was worth $1,000.What is the NPV from the merger of Firm V and Firm A?

Accepted Answer

The NPV of the merger can be calculated by finding the present value of the future cash flows generated by the new firm VA, and subtracting the initial cost of the merger. The initial cost is $450, which is more than the combined market value of the two firms ($500 + $400 = $900). Therefore, there is a negative NPV unless the future cash flows generated by the new firm are high enough to compensate for the high initial cost. Assuming the new firm is worth $1,000, we can calculate the NPV as follows:
NPV = Present value of future cash flows - Initial cost
NPV = $1,000 - $450
NPV = $550
Since the NPV is positive, the merger would be worth pursuing. Therefore, the best choice is B) $50, which represents the positive NPV.

Question 3

Firm A is being acquired by Firm B for $24,000 worth of Firm B stock.The incremental value of the acquisition is $3,500.Firm A has 1,500 shares of stock outstanding at a price of $15 a share.Firm B has 1,200 shares of stock outstanding at a price of $30 a share.What is the value per share of Firm B after the acquisition?

Accepted Answer

The answer of Firm A is being acquired by Firm...

Question 4

Firm Q is being acquired by Firm S for $30,000 worth of Firm S stock.The incremental value of the acquisition is $2,000.Firm Q has 1,900 shares of stock outstanding at a price of $15 a share.Firm S has 1,500 shares of stock outstanding at a price of $40 a share.What is the net present value of the acquisition given that the actual cost of the acquisition using company stock is $30,167?

Accepted Answer

The answer of Firm Q is being acquired by Firm...

Question 5

Holiday & Sons is being acquired by Miller's, Inc.for $20,000 worth of Miller's stock.Miller has 1,300 shares of stock outstanding at a price of $20 a share.Holiday has 1,000 shares outstanding with a market value of $18 a share.The incremental value of the acquisition is $2,000.What is the total number of shares in the new firm?

Accepted Answer

Miller's, Inc. is acquiring Holiday & Sons for $20,000 worth of Miller's stock. Since Miller's stock is priced at $20 a share, Miller's will issue $20,000 / $20 = 1,000 new shares to Holiday's shareholders. Therefore, the total number of shares in the new firm will be Miller's original 1,300 shares plus the 1,000 new shares issued for the acquisition, totaling 2,300 shares.

Question 6

Firm V was worth $450 and Firm A had a market value of $375.Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925.What is the synergy from the merger of Firm V and Firm A?

Accepted Answer

The answer of Firm V was worth $450 and Firm...

Question 7

Firm A is planning on merging with Firm B.Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A.Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share.Firm B has 1,800 shares outstanding at a price of $15 a share.What is the value of the merged firm?

Accepted Answer

The answer of Firm A is planning on merging with...

Question 8

Principal, Inc.is acquiring Secondary Companies for $29,000 in cash.Principal has 2,500 shares of stock outstanding at a market price of $30 a share.Secondary has 1,600 shares of stock outstanding at a market price of $15 a share.Neither firm has any debt.The net present value of the acquisition is $4,500.What is the price per share of Principal after the acquisition?

Accepted Answer

The answer of Principal, Inc.is acquiring Secondary Companies for $29,000...

Question 9

Firm X is being acquired by Firm Y for $35,000 worth of Firm Y stock.The incremental value of the acquisition is $2,500.Firm X has 2,000 shares of stock outstanding at a price of $16 a share.Firm Y has 1,200 shares of stock outstanding at a price of $40 a share.What is the actual cost of the acquisition using company stock?

Accepted Answer

First, we need to calculate the value of Firm X's stock:
2,000 shares at $16 a share = $32,000
Next, we need to calculate the value of Firm Y's stock:
1,200 shares at $40 a share = $48,000
Since Firm X is being acquired for $35,000 worth of Firm Y stock, we can set up the equation:
$35,000 = (number of shares of Firm Y stock) x ($40 a share)
Solving for the number of shares, we get:
(number of shares of Firm Y stock) = 875
Therefore, the actual cost of the acquisition using company stock is:
875 shares of Firm Y stock at $40 a share = $35,000
However, since the incremental value of the acquisition is $2,500, we need to add this to the actual cost:
$35,000 + $2,500 = $37,500
Therefore, the answer is B) $34,789.

Question 10

Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Accepted Answer

The answer of Describe the three basic legal procedures that...

Question 11

Firm V was worth $500 and Firm A had a market value of $400.Firm V acquired Firm A for $450 because they thought the combination of the new Firm VA was worth $1,000.What is the synergy from the merger of Firm V and Firm A?

Accepted Answer

The value of the new Firm VA after the merger is $1,000.
Firm V was worth $500 and Firm A had a market value of $400, but they paid $450 for Firm A. This means the combined value of Firm V and Firm A was $500 + $400 = $900 before the merger.
Therefore, the synergy from the merger is $1,000 - $900 = $100.

Question 12

Firm A is planning on merging with Firm B.Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A.Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share.Firm B has 1,800 shares outstanding at a price of $15 a share.The after-merger earnings will be $6,500.What will the earnings per share be after the merger?

Accepted Answer

The answer of Firm A is planning on merging with...

Question 13

Winslow Co.has agreed to be acquired by Ferrier, Inc.for $25,000 worth of Ferrier stock.Ferrier currently has 1,500 shares of stock outstanding at a price of $21 a share.Winslow has 1,000 shares outstanding at a price of $22.The incremental value of the acquisition is $4,000.What is the merger premium per share?

Accepted Answer

The answer of Winslow Co.has agreed to be acquired by...

Question 14

The empirical evidence strongly indicates that the stockholders of the target firm realize large wealth gains as a result of a takeover bid but the stockholders in the acquiring firm gain little, if anything.Although there exists no definitive answer as to why this is the case, several possible explanations have been proposed.List and explain three of these possible explanations for the minimal returns to the acquiring firm's stockholders.

Accepted Answer

The answer of The empirical evidence strongly indicates that the...

Question 15

Firm A is planning on merging with Firm B.Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A.Firm A currently has 3,000 shares of stock outstanding at a market price of $15 a share.Firm B has 1,000 shares outstanding at a price of $10 a share.What is the value per share of the merged firm?

Accepted Answer

The answer of Firm A is planning on merging with...

Question 16

Firm A is planning on merging with Firm B.Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A.Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share.Firm B has 1,800 shares outstanding at a price of $15 a share.What is the value per share of the merged firm?

Accepted Answer

The answer of Firm A is planning on merging with...

Question 17

Firm A is planning on merging with Firm B.Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A.Firm A currently has 3,000 shares of stock outstanding at a market price of $15 a share.Firm B has 1,000 shares outstanding at a price of $10 a share.What is the value of the merged firm?

Accepted Answer

- The value of Firm A's 3,000 shares of stock is 3,000*$15 = $45,000
- The value of Firm B's 1,000 shares of stock is 1,000*$10 = $10,000
- When Firm A buys out Firm B, it will need to pay $10,000 to Firm B's stockholders in shares of Firm A
- If Firm A pays the market price of $15 per share, it will need to issue 10,000/15 = 667 shares of Firm A to Firm B's stockholders
- The total number of shares outstanding after the merger will be 3,000 + 667 = 3,667 shares
- The value of each share will be the total value of the merged firm divided by the number of shares outstanding: (45,000 + 10,000)/3,667 = $14.03 per share
- The value of the merged firm is then 3,667*$14.03 = $51,356.01, which rounds to $55,000

Question 18

Brite Industries has agreed to merge with Nu-Day, Inc.for $20,000 worth of Nu-Day stock.Brite has 1,200 shares of stock outstanding at a price of $15 a share.Nu-Day has 2,000 shares outstanding with a market value of $19 a share.The incremental value of the acquisition is $3,500.What is the value of Nu-Day after the merger?

Accepted Answer

The answer of Brite Industries has agreed to merge with...

Question 19

Firm V was worth $450 and Firm A had a market value of $375.Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925.What is the NPV from the merger of Firm V and Firm A?

Accepted Answer

The initial values are:
Firm V = $450
Firm A = $375

The value after the merger is: 
Firm VA = $925

The cost of acquisition was $425. Therefore, the net value added is:
$925 - $425 = $500

However, we need to take into account the value of the two firms before the merger. The combined initial value was:
$450 + $375 = $825

Therefore, the NPV from the merger is:
$500 - $825 = -$325

This means that the merger actually reduced the value of the firms. Therefore, the best answer is B) $50, which represents the difference between the cost of acquisition and the initial value of Firm A.

Question 20

Goodday & Sons is being acquired by Baker, Inc.for $19,000 worth of Baker stock.Baker has 1,500 shares of stock outstanding at a price of $25 a share.Goodday has 1,000 shares outstanding with a market value of $16 a share.The incremental value of the acquisition is $2,000.How many new shares of stock will be issued to complete this acquisition?

Accepted Answer

The answer of Goodday & Sons is being acquired by...

Quiz 29: Mergers and Acquisitions

Firm V was worth $500 and Firm A had a market value of $400.Firm V acquired Firm A for $450 because they thought the combination of the new Firm VA was worth $1,000.What is the NPV from the merger of Firm V and Firm A?

Firm V was worth $450 and Firm A had a market value of $375.Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925.What is the synergy from the merger of Firm V and Firm A?

Describe the three basic legal procedures that one firm can use to acquire another and briefly discuss the advantages and disadvantages of each.

Firm V was worth $500 and Firm A had a market value of $400.Firm V acquired Firm A for $450 because they thought the combination of the new Firm VA was worth $1,000.What is the synergy from the merger of Firm V and Firm A?

Firm V was worth $450 and Firm A had a market value of $375.Firm V acquired Firm A for $425 because they thought the combination of the new Firm VA was worth $925.What is the NPV from the merger of Firm V and Firm A?