a)
To compute: The NPV (
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
a)
Answer to Problem 8QP
The NPV of the merger is $5,200.
Explanation of Solution
Given information: Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the NPV:
Calculate the NPV if the price per share for acquisition is $21:
Hence, the NPV is $5,200.
b)
To calculate: The price per share
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
b)
Answer to Problem 8QP
The price per share is $47.96.
Explanation of Solution
Given information: Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the share price:
Calculate the share price:
Hence, the share price $47.96.
c)
To calculate: The merger premium.
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
c)
Answer to Problem 8QP
The merger premium is $4,200.
Explanation of Solution
Given information: Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the merger premium:
Calculate the merger premium:
Hence, the merger premium is $4,200
d)
To calculate: The price per share if the merger takes place through the exchange of stock and if the bidding firm offers one share for each of the two target firm’s shares.
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
d)
Answer to Problem 8QP
The price for one share in the merged firm is $47.28.
Explanation of Solution
Given information: Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the new shares:
Calculate the new shares:
Hence, the created new shares is $700.
Formula to calculate the value of the merged firm:
Calculate the value of the merged firm:
Hence, the value of the merged firm is $288,400.
Formula to calculate the price for one share for a merged firm:
Calculate the price for one share for a merged firm:
Hence, the price for one share is $47.28.
e)
To calculate: The NPV of the merger if the merger takes place through the exchange of stocks and if the bidding firm offers one share for each of the two target firms’ shares
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
e)
Answer to Problem 8QP
The NPV of the merger is $1,504.92.
Explanation of Solution
Given information:
Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the NPV:
Calculate the NPV:
Hence, the NPV is $1,504.92.
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Chapter 26 Solutions
Fundamentals of Corporate Finance
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- Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning