Question 1

Tuesday's and Thursday's are all-equity firms. Tuesday's has 5,600 shares outstanding at a market price of $28 a share. Thursday's has 4,500 shares outstanding at a price of $42 a share. Thursday's is acquiring Tuesday's. The incremental value of the acquisition is $4,200. What is the value of Tuesday's to Thursday's?
A) $130,200
B) $152,600
C) $156,800
D) $161,000
E) $165,400

Accepted Answer

The value of Tuesday's to Thursday's is calculated by adding the market value of Tuesday's to the incremental value of the acquisition. Tuesday's market value is 5,600 shares * $28 = $156,800. Adding the incremental value of $4,200 gives $156,800 + $4,200 = $161,000.

Question 2

Firm A is acquiring Firm B for $59,000 in cash. Firm A has 4,600 shares of stock outstanding at a market value of $19 a share. Firm B has 2,500 shares of stock outstanding at a market price of $21 a share. Neither firm has any debt. The net present value of the acquisition is $1,800. What is the value of Firm A after the acquisition?
A) $74,500
B) $89,200
C) $136,700
D) $141,700
E) $146,400

Accepted Answer

The answer of Firm A is acquiring Firm B for...

Question 3

Alto and Solo are all-equity firms. Alto has 2,400 shares outstanding at a market price of $24 a share. Solo has 4,000 shares outstanding at a price of $17 a share. Solo is acquiring Alto for $63,000 in cash. The incremental value of the acquisition is $5,500. What is the net present value of acquiring Alto to Solo?
A) $100
B) $400
C) $1,200
D) $2,400
E) $5,500

Accepted Answer

The net present value (NPV) of acquiring Alto for Solo is calculated as the difference between the incremental value of the acquisition and the acquisition cost. The acquisition cost is $63,000, and the incremental value is $5,500. Therefore, the NPV = $5,500 - $63,000 = -$57,500. However, given the options provided, it seems there might be a misunderstanding in the interpretation of the question or the options provided. Since none of the options match the calculated NPV and assuming a possible mistake in calculation or interpretation, based on the provided options and the context, the correct answer intended might be to demonstrate understanding of how to calculate NPV in acquisitions, which is not directly reflected in the options given.

Question 4

By lowering the percentage of shareholders which must approve the merger, a firm makes an acquisition of that firm more difficult.

Accepted Answer

Lowering the percentage of shareholders required to approve a merger actually makes it easier to achieve approval for the acquisition, as fewer votes are needed to meet the threshold.

Question 5

It has been suggested that the reason why the stockholders in acquiring firms may not benefit to any significant degree from an acquisition is because management may have priorities other than the interest of the stockholders.

Accepted Answer

This statement is true because management may prioritize personal goals, growth, or other objectives over maximizing shareholder value, leading to acquisitions that do not significantly benefit stockholders.

Question 6

Firm A can acquire firm B for $120,000 in cash or in shares of firm A stock. The synergy value is $36,000.
 What is the value of the post-merger firm if the merger is an all cash deal?
A) $126,000
B) $142,000
C) $178,000
D) $214,000
E) $334,000

Accepted Answer

The answer of Firm A can acquire firm B for...

Question 7

By Staggering the election of board members, a firm makes an acquisition of that firm more difficult.

Accepted Answer

Staggering the election of board members, also known as a staggered board, means that only a portion of the board is elected in any given year, making it harder for an acquiring company to gain control of the board quickly and thus complicating a takeover attempt.

Question 8

An argument against using an acquisition by tender offer as opposed to a merger is that a significant number of minority shareholders may hold out.

Accepted Answer

The answer of An argument against using an acquisition by...

Question 9

Neither acquiring firm A nor target firm B has any debt. The incremental value of the proposed acquisition is estimated to be $250,000. Firm B is willing to be acquired for $30 per share in cash.  What is the NPV for acquiring firm B?
A) The NPV is negative
B) $115,000
C) $160,000
D) $235,000
E) $260,000

Accepted Answer

The answer of Neither acquiring firm A nor target firm...

Question 10

Suppose you have the following information concerning an acquiring firm (A) and a target firm (B). Neither firm has any debt. The incremental value of the acquisition is estimated to be $250,000. Firm B is willing to be acquired for $540,000 worth of Firm A's stock.  What is the NPV of acquiring Firm B?
A) The NPV is negative
B) $94,588
C) $102,120
D) $118,156
E) $162,015

Accepted Answer

The answer of Suppose you have the following information concerning...

Question 11

Firm S is planning on merging with Firm T. Firm S will pay Firm T's stockholders the current value of their stock in shares of Firm S. Firm S currently has 5,100 shares of stock outstanding at a market price of $15 a share. Firm T has 2,600 shares outstanding at a price of $19 a share. What is the value of the merged firm?
A) $76,500
B) $87,200
C) $125,900
D) $128,400
E) $131,600

Accepted Answer

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

Question 12

Calipers, Inc. is acquiring Johnson Warehouse for $47,000 in cash. Calipers has 2,700 shares of stock outstanding at a market value of $32 a share. Johnson Warehouse has 3,200 shares of stock outstanding at a market price of $14 a share. Neither firm has any debt. The net present value of the acquisition is $1,800. What is the value of Caliper's after the acquisition?
A) $84,600
B) $86,000
C) $110,000
D) $124,800
E) $133,000

Accepted Answer

The value of Calipers after the acquisition is the sum of its initial market value, the market value of Johnson Warehouse, and the net present value of the acquisition. Calipers' initial market value is 2,700 shares * $32 = $86,400. Johnson Warehouse's market value is 3,200 shares * $14 = $44,800. The total cost of acquisition is $47,000 in cash. The net present value of the acquisition is $1,800. Therefore, the value of Calipers after the acquisition is $86,400 + $44,800 - $47,000 + $1,800 = $86,000.

Question 13

All else equal, the cost of an acquisition will likely be higher if the acquirer uses its own common stock rather than cash to complete the purchase.

Accepted Answer

When an acquirer uses its own common stock to complete a purchase, the number of shares outstanding increases, which dilutes the ownership interest of existing shareholders. As a result, the acquirer must offer a premium on the stock price to compensate shareholders for this dilution. This premium increases the cost of the acquisition compared to using cash.

Question 14

Downing's Boats has agreed to be acquired by Schooners, Inc. for $325,000 worth of Schooners stock. Downing's currently has 12,500 shares of stock outstanding at a price of $23.80 a share. Schooners has 32,000 shares outstanding at a price of $46. The incremental value of the acquisition is $11,700. What is the merger premium per share?
A) $1.00
B) $1.20
C) $1.80
D) $2.20
E) $2.80

Accepted Answer

The answer of Downing's Boats has agreed to be acquired...

Question 15

The Sandwich Shoppe has 1,600 shares outstanding at a market price per share of $11. Joe's Slop Hut has 1,800 shares outstanding at a market price of $14 a share. Neither firm has any debt. Joe's Slop Hut is acquiring The Sandwich Shoppe. The incremental value of the acquisition is $1,600. What is the value of The Sandwich Shoppe to Joe's Slop Hut?
A) $1,600
B) $2,200
C) $17,600
D) $19,200
E) $22,500

Accepted Answer

The value of The Sandwich Shoppe to Joe's Slop Hut includes both the market value of The Sandwich Shoppe and the incremental value of the acquisition. The market value of The Sandwich Shoppe is calculated as the number of shares outstanding multiplied by the market price per share, which is 1,600 shares * $11/share = $17,600. The incremental value of the acquisition is given as $1,600. Therefore, the total value of The Sandwich Shoppe to Joe's Slop Hut is $17,600 + $1,600 = $19,200.

Question 16

It has been suggested that the reason why the stockholders in acquiring firms may not benefit to any significant degree from an acquisition is because the price paid for the target firm might equal that firm's total value.

Accepted Answer

When the acquiring firm pays a price that equals the total value of the target firm, there is no "bargain" or additional value created through the acquisition. Therefore, the stockholders of the acquiring firm may not see significant benefits or gains from the acquisition, as the cost of acquisition negates potential value gains.

Question 17

The Lily Pad has 1,500 shares outstanding at a market price per share of $12. The Specialty Shop has 2,600 shares outstanding at a market price of $18 a share. Neither firm has any debt. The Specialty Shop is acquiring The Lily Pad for $20,000 in cash. The incremental value of the acquisition is $3,100. What is the value of The Lily Pad to The Specialty Shop?
A) $2,000
B) $9,000
C) $11,600
D) $16,900
E) $21,100

Accepted Answer

The value of The Lily Pad to The Specialty Shop can be calculated by adding the acquisition price of The Lily Pad ($20,000) to the incremental value of the acquisition ($3,100), which equals $23,100. However, since the question asks for the value of The Lily Pad to The Specialty Shop, not the total cost or value including the incremental value, the correct approach is to consider the acquisition price alone, which is $20,000. The incremental value is an additional benefit to the Specialty Shop, making the total value of the deal to them $23,100, but the value of The Lily Pad itself in this context is the acquisition price. The options provided do not directly match this explanation due to a misunderstanding in the explanation process. The correct calculation should focus on the direct question asked, which seems to have been misinterpreted in the initial explanation.

Question 18

Capitol Stores and The Back Corner are all-equity firms. Capitol Stores has 1,750 shares outstanding at a market price of $18.40 a share. The Back Corner has 2,100 shares outstanding at a price of $34 a share. The Back Corner is acquiring Capitol Stores for $34,900 in cash. What is the merger premium per share?
A) $0.46
B) $0.89
C) $1.54
D) $1.65
E) $2.00

Accepted Answer

The merger premium per share is calculated as the difference between the offer price per share and the current market price per share. The offer price per share is $34,900 / 1,750 shares = $19.94. The current market price per share is $18.40. Thus, the merger premium per share is $19.94 - $18.40 = $1.54.

Question 19

Firm X is planning on merging with Firm Y. Firm X will pay Firm Y's stockholders the current value of their stock in shares of Firm X. Firm X currently has 3,900 shares of stock outstanding at a market price of $40 a share. Firm Y has 2,200 shares outstanding at a price of $17 a share. The after-merger earnings will be $7,800. What will the earnings per share be after the merger?
A) $1.61
B) $1.67
C) $1.75
D) $1.81
E) $1.86

Accepted Answer

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

Question 20

Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26. Sally's has 3,000 shares outstanding at a market price of $41 a share. Neither firm has any debt. Sally's is acquiring Jennifer's for $58,000 in cash. What is the merger premium per share?
A) $1.43
B) $1.62
C) $1.81
D) $2.04
E) $2.07

Accepted Answer

The answer of Jennifer's Boutique has 2,100 shares outstanding at...

Quiz 23: Mergers and Acquisitions

By lowering the percentage of shareholders which must approve the merger, a firm makes an acquisition of that firm more difficult.

It has been suggested that the reason why the stockholders in acquiring firms may not benefit to any significant degree from an acquisition is because management may have priorities other than the interest of the stockholders.

Firm A can acquire firm B for $120,000 in cash or in shares of firm A stock. The synergy value is $36,000. What is the value of the post-merger firm if the merger is an all cash deal?

By Staggering the election of board members, a firm makes an acquisition of that firm more difficult.

An argument against using an acquisition by tender offer as opposed to a merger is that a significant number of minority shareholders may hold out.

Neither acquiring firm A nor target firm B has any debt. The incremental value of the proposed acquisition is estimated to be $250,000. Firm B is willing to be acquired for $30 per share in cash. What is the NPV for acquiring firm B?

All else equal, the cost of an acquisition will likely be higher if the acquirer uses its own common stock rather than cash to complete the purchase.

It has been suggested that the reason why the stockholders in acquiring firms may not benefit to any significant degree from an acquisition is because the price paid for the target firm might equal that firm's total value.

Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26. Sally's has 3,000 shares outstanding at a market price of $41 a share. Neither firm has any debt. Sally's is acquiring Jennifer's for $58,000 in cash. What is the merger premium per share?