Question 1

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?

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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 from the merger is calculated as the difference between the value of the combined firm ($1,000) and the sum of the acquisition cost ($450) and the original value of Firm V ($500). Thus, NPV = $1,000 - ($500 + $450) = $50.

Question 3

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?

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Question 4

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

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Question 5

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 synergy from the merger is calculated as the difference between the combined value of the firms after the merger and the sum of their individual values before the merger. The combined value is $925, and the sum of their individual values is $450 + $375 = $825. Therefore, the synergy is $925 - $825 = $100.

Question 6

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.

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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. The after-merger earnings will be $6,500. What will the earnings per share be after the merger?

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Question 8

Waterbury 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. Waterbury 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?

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Question 9

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 Firm V before the merger was $500 and after the merger, the value of the new firm VA is $1,000. Therefore, the increase in value can be attributed to the synergy generated by the merger. The increase in value is $1,000 - $500 - $400 = $100. Therefore, the synergy from the merger of Firm V and Firm A is $100.

Question 10

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 the merged firm is the sum of the market values of both firms: Firm A's value is 3,000 shares * $15 = $45,000, and Firm B's value is 1,000 shares * $10 = $10,000. Therefore, the total value is $45,000 + $10,000 = $55,000.

Question 11

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?

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Question 12

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 market value of Firm V and Firm A prior to the merger was $450 and $375, respectively. The purchase price paid by Firm V was $425.

Therefore, Firm A was acquired at a premium of $50 ($425 - $375).

If Firm V believed that the combination of the two firms would be worth $925, then the additional value created from the merger would be $50 ($925 - $875, which is the sum of the market values of the two firms prior to the merger). This $50 represents the net present value (NPV) of the merger.

Question 13

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 incremental value of the acquisition is $2,000. Baker has 1,500 shares of stock outstanding at a price of $25 a share. So, the total value of Baker's stock is $37,500. Goodday has 1,000 shares outstanding with a market value of $16 a share. So, the total value of Goodday's stock is $16,000. The total value of the acquisition is $19,000. So, the incremental value of the acquisition is $3,000. To complete the acquisition, Baker will need to issue 120 new shares of stock.

Question 14

Western Fronts is being acquired by Eastern Slopes for $30,000 worth of Eastern Slopes stock. The incremental value of the acquisition is $2,000. Western Fronts has 1,900 shares of stock outstanding at a price of $15 a share. Eastern Slopes 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 actual cost of the acquisition using company stock is $30,167, which is greater than the incremental value of $2,000.

First, we need to determine the total value of Western Fronts before the acquisition:
Total value = 1,900 shares x $15 per share = $28,500

Next, we need to determine the total value of Eastern Slopes before the acquisition:
Total value = 1,500 shares x $40 per share = $60,000

The incremental value of the acquisition is $2,000, which means that the actual cost of the acquisition includes $28,500 + $2,000, or $30,500 worth of Eastern Slopes stock.

We can now calculate the net present value of the acquisition:
Net present value = $60,000 - $30,500 = $29,500

However, we need to subtract the actual cost of the acquisition from this amount to get the net present value:
Net present value = $29,500 - $30,167 = -$667

Since the net present value is negative, the acquisition would not be a good choice for Eastern Slopes.

Question 15

The Peris Co. is planning on merging with the Thornton Co. Peris will pay Thornton's stockholders the current value of their stock in shares of Peris. Peris currently has 2,300 shares of stock outstanding at a market price of $20 a share. Thornton 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

The value of the shares that Peris will pay to Thornton's stockholders is:
1,800 shares x $15/share = $27,000
To pay this amount, Peris will issue:
$27,000 ÷ $20/share = 1,350 shares of Peris stock
After the merger, the total number of shares outstanding will be:
2,300 shares (Peris) + 1,800 shares (Thornton) + 1,350 shares (issued to Thornton's stockholders) = 5,450 shares
Therefore, the correct answer is D) 3,650 shares (the sum of Peris and Thornton's original shares).

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 of the merged firm?

Accepted Answer

The value of the merged firm is the sum of the values of the two firms. The value of Firm A is 2,300 shares * $20 per share = $46,000. The value of Firm B is 1,800 shares * $15 per share = $27,000. Therefore, the value of the merged firm is $46,000 + $27,000 = $73,000.

Question 17

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?

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Question 18

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 total value after the acquisition is the sum of the value of Firm B, the value of Firm A, and the incremental value. Firm B's initial value is 1,200 shares * $30 = $36,000. Firm A's value is 1,500 shares * $15 = $22,500. The total value after acquisition is $36,000 + $22,500 + $3,500 = $62,000. The total number of shares after the acquisition is 1,200 + ($24,000 / $30) = 2,000 shares. The value per share is $62,000 / 2,000 = $31.00.

Question 19

Alexandra's is being acquired by David's,Inc. for $20,000 worth of David'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

The total value of the new firm is the sum of the value of both companies plus the incremental value: (1,300 shares * $20) + (1,000 shares * $18) + $2,000 = $26,000 + $18,000 + $2,000 = $46,000. Since David's is acquiring Alexandra's for $20,000 worth of stock, the remaining value of the new firm is $46,000 - $20,000 = $26,000. The total number of shares in the new firm is the sum of the shares from both companies: 1,300 + 1,000 = 2,300 shares.

Question 20

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...

Quiz 29: Mergers, Acquisitions, and Divestitures

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?

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 $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?

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?