Question 2 of 7 View Policies Current Attempt in Progress Fessenden Corporation has accumulated a significant 10 amount of debt as a result of debt - financed acquisitions of other companies. It is currently considering acquiring one of its competitors, Sonar Corporation. Fessenden's existing debt covenants stipulate that it cannot go beyond a debt to equity ratio of 1.25:1 and a net debt as a percentage of capitalization ratio of 0.90:1. The acquisition of Sonar will cost $ 80 million. Fessenden's current level of equity is $470 million and its current level of interest - bearing debt is $599 million. Fessenden has a cash balance of $82 million. It will finance the acquisition with a 10-year bond of $80 million that carries a 5% interest rate sold at par. Determine Fessenden's debt to equity ratio and net debt as a percentage of capitalization ratio prior to the proposed acquisition. (Round answers to 2 decimal places, e.g. 1.25.) Debt to Equity : 1 Net Debt as a Percentage of Total Capitalization :1

Question 2 of 7 View Policies Current Attempt in Progress Fessenden Corporation has accumulated a significant 10 amount of debt as a result of debt - financed acquisitions of other companies. It is currently considering acquiring one of its competitors, Sonar Corporation. Fessenden's existing debt covenants stipulate that it cannot go beyond a debt to equity ratio of 1.25:1 and a net debt as a percentage of capitalization ratio of 0.90:1. The acquisition of Sonar will cost $ 80 million. Fessenden's current level of equity is $470 million and its current level of interest - bearing debt is $599 million. Fessenden has a cash balance of $82 million. It will finance the acquisition with a 10-year bond of $80 million that carries a 5% interest rate sold at par. Determine Fessenden's debt to equity ratio and net debt as a percentage of capitalization ratio prior to the proposed acquisition. (Round answers to 2 decimal places, e.g. 1.25.) Debt to Equity : 1 Net Debt as a Percentage of Total Capitalization :1

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter26: Mergers And Corporate Control

Section: Chapter Questions

Problem 5P

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Show Attermpt Current Attempt in Progress Fessenden Corporation has accumulated a significant amount of debt as a result of debt-financed acquisitions of other companies. It is currently considering acquiring one of its competitors, Sonar Corporation. Fessenden's existing debt covenants stipulate that it cannot go beyond a debt to equity ratio of 1.25:1 and a net debt as a percentage of capitalization ratio of 0.90:1. The acquisition of Sonar will cost $72 million. Fessenden's current level of equity is $410 million and its current level of interest-bearing debt is $562 million. Fessenden has a cash balance of $70 million. It will finance the acquisition with a 10-year bond of $72 million that carries a 5% interest rate sold at par. Your answer is partially correct. Determine Fessenden's debt to equity ratio and net debt as a percentage of capitalization ratio prior to the proposed acquisition. (Round answers to 2 decimal places, e.g. 1.25.) 1.37 :1 Debt to Equity 0.54 :1 Net Debt as a…
Long-Term Debt and Ethics You arc the CFO of Diversified Industries. Diversified has suffered through 4 or 5 tough years. This has deteriorated its financial condition to the point that Diversified is in danger of violating two loan covenants related to its largest loan, which is not due for 12 more years. The loan contract states that if Diversified violates any of these covenants, the loan principal becomes immediately due and payable. Diversified would be unable to make this payment, and any additional loans taken to repay this loan would likely be at higher rates, forcing Diversified into bankruptcy. An investment banker suggests forming another entity (called special purpose entities or SPE) and transferring some debt to this SPE. Structuring the SPE very carefully will have the effect of moving enough debt off Diversifier's balance sheet to keep the company in compliance with all its loan covenants. The investment banker assures you that accounting rules permit such accounting treatment. Required: How do you react to the investment banker?
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Company A is considering the acquisition of Company B, and intends to finance this potential acquisition using only retained cash. Consider the information in Table 2 about Companies A and B, expected synergies from the acquisition and price asked by Company B's shareholders to sell their company. Table 2 A Current market value (€) 700 420 Number of shares 100 40 Expected synergies from acquisition (€) 80 Value asked by Company B's shareholders (€ ) 560 To answer the following questions make plausible assumptions if necessary. a. What is the expected combined value after acquisition? Explain your answer. b. Should A acquire B by €560? Explain your answer. c. Consider the scenario where Company A decides to finance the acquisition with equity instead of cash. What would be the optimal exchange ratio of Company Av ersus Company B shares? Explain your answer.
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Problem 1. M Corporation provided you with the following records: * Payment for damages for unrealized profits deposited in court by a competitor in favor of M Corporation Interest credited on peso-savings deposit, net of tax Decrease in value of investment in bonds, not yet collected Matured interest on coupon bonds, not yet collected P60,000 40,000 50,000 80,000 120,000 Cancellation of indebtedness from J Corporation Increase in the fair market value of ABC equity investments 30,000 Profit share in joint venture not yet received 200,000 Based on the foregoing information, how much is the total amount of realized income of M Corporation?
(i) On April 28, 2008, Mars Inc. announced that it had reached an agreement to merge with Wrigley Corporation for $23 billion in cash. While mergers among competitors are not unusual, the deal's highly leveraged financial structure was uncommon in transactions of this type. Almost 90 percent of the purchase price would be financed through borrowed funds. What is the name of the deal structure Mars was using to acquire Wrigley? Briefly discuss two disadvantages of this type of deal structure.
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Tax effects of acquisition Trapani Tool Company is evaluating the acquisition of Sussman Casting. Sussman has a tax loss carryforward of $1.8 million. Trapani can purchase Sussman for $2.1 million. It can sell the assets for $1.6 million, their book value. Trapani expects its earnings before taxes in the 5 years after the merger to be as shown in the following table. The expected earnings given are assumed to fall within the annual limit that is legally allowed for application of the tax loss carryforward resulting from the proposed merger (see footnote 2). Trapani is in the 21% tax bracket. Calculate the firm’s tax payments and earnings after taxes for each of the next 5 years without the merger. Calculate the firm’s tax payments and earnings after taxes for each of the next 5 years with the merger. What are the total benefits associated with the tax losses from the merger? (Ignore present value.) Discuss whether you would recommend the proposed merger. Support your decision with…
25 – 26:Judicious Company acquired an equity investment a number of years ago for P 3,000,000 and classified it as fair value through other comprehensive income. On December 31, 2020, the cumulative loss recognized in other comprehensive income was P 400,000 and the carrying amount of the investment was P 2,600,000. On December 31, 2021, the issuer of the equity instrument was in sever financial difficulty and the fair value of the equity investment had fallen to P 1,200,000. 25: What cumulative amount of unrealized loss should be reported as component of other comprehensive income in the statement of changes in equity for the year ended December 31, 2021? 26: prepare journal entry to recognize the decrease in value on December 31, 2021.
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