PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Question
Chapter 31, Problem 11PS
a)
Summary Introduction
To determine:
b)
Summary Introduction
To determine: New price.
c)
Summary Introduction
To determine: Price for Company U.
d)
Summary Introduction
To determine: Percentage gain to shareholders of the firms.
e)
Summary Introduction
To determine: Stock price.
f)
Summary Introduction
To determine: NPV and its difference with that of part a).
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Parentis Ltd. has a value of $150million while the value of Sandis Ltd. is $70million. A merger between the two has just gone through and cost savings with a present value of $ 10million is expected to be achieved. Parentis Ltd. paid cash of $85million for the entire paid up capital of Company B.Requiredi. What is the value of the two firms after the merger?
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Firm A has a value of $100 million and Firm B has a value of $70 million. Merging the two would enable cost savings with a present value of $20 million. Firm A purchases Firm B for $75 million. What is the gain from this merger?
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PART A:
Most Valuable Potatoes (MVP) is bidding to take over Tomatoes Kale Operators (TKO).
MVP has 10,000 shares outstanding, selling at $60 per share. TKO has 6,000 shares
outstanding, selling at $30 per share. Neither firm has debt. Both MVP and TKO have a Cost
of Capital of 8.00%. MVP estimates that the synergies from the merger will increase its
annual after-tax cash flow by $3,000 indefinitely. Using this information, answer the
following using Excel:
a) What is the value of the synergy from the merger?
b) If TKO can be acquired for $33 cash per share, what is the NPV of the merger to MVP?
c) The market is semi-strong efficient. What will MVP sell for when the market learns that it
plans to acquire TKO for $33 a share? What will TKO sell for? What amount of the
synergies do MVP's shareholders receive vs TKO's shareholders?
d) Assuming TKO shareholder would prefer to be paid in MVP shares - how many shares
would MVP need to issue in total for both parties to be indifferent between…
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