PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 31, Problem 20PS
Summary Introduction
To determine: Company P’s profit on its holding.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
George's Equipment is planning on merging with Nelson Machinery. George's will pay Nelson's shareholders the current value of their stock in shares of George's Equipment. George's currently has 4,600 shares of stock outstanding at a market price of $31 a share. Nelson's has 1,600 shares outstanding at a price of $38 a share. What is the value per share of the merged firm?
The shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation. Information about each firm is given here:
BreadButterPrice-earnings ratio1023Shares outstanding75,000260,000Earnings$ 230,000$ 1,040,000
Bread's shareholders will receive one share of Butter stock for every three shares they hold in Bread.
a-1.What will the EPS of Butter be after the merger? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
a-2.What will the PE ratio be if the NPV of the acquisition is zero? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)b.What must Butter feel is the value of the synergy between these two firms?
Brothers Coffee Co is planning on merging with Steve's Tea. Brothers Coffee will pay Steve's Tea shareholders the current value of their stock using sharesof Brothers Coffee as the form of payment. Brothers Coffee has 6500 shares outstanding at a market price of $12.50 per share. Steve's Tea has 3000 shares outstanding at a market price of $15.50 per share. The expected synergy created by the merger is $3200. What is the value of the merged firm (excludes cost of acquisition)?
A)130,950
B) 127,750
C) 84450
D) 52,900
E) 124,400
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 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 1,800 shares of stock outstanding at a market price of $40 a share. Firm B has 1,200 shares outstanding at a price of $47 a share. What is the value per share of the merged firm?arrow_forwardHonesty Company started negotiating for the acquisition of Integnity Company. The offer was for shareholders of Integrity to receive one Honesty share with a market value of P125 for every four shares held in exchange for all assets of Integrity (except shares in listed companies). In addition to the shares, Honesty will transfer its shares in listed companies which has a fair market value of P750,000. Honesty will also pay integrity sufficient cash to enable Integrity to pay all its creditors then Integrity will liquidate. The shareholders of Integrity accepted the offer. The Balance Sheet on December 31, 2020 is given below (see image below). The net assets of Integrity are reflected at their fair values except for the following: Inventory, P1,300,000 fair market value Land and building, P4,000,000 fair market value Shares in listed companies, P900,000 fair market value How much is the total assets of Honesty after the merger? Honesty 7,250,000 1,700,000 2,800,000 800,000 3,500,000…arrow_forwardFirm E is going to acquire Firm F. The acquisition will be done via a share exchange, whereby Firm E will exchange 2.65 of its shares for every one of Firm F's shares. Synergy is $1,250,000 in total. Firm E has 350,000 shares outstanding trading at $35 each. Firm F has 45,000 shares outstanding trading at $84 each. What would the exchange ratio have to be for the NPV of the deal to be zero? Question 1 options: A) 3.13 shares of E for every 1 of F B) 0.41 shares of E for every 1 of F C) 3.15 shares of E for every 1 of F D) 2.40 shares of E for every 1 of F E) 3.19 shares of E for every 1 of Farrow_forward
- On January 1, 2021, X Inc. purchased 25% of the voting shares of Y Inc. However, due to a system crash, the initial amount of consideration paid for this 25% has been lost. X uses the equity method. X has significant influence over Y. Calculate the Value of the initial purchase X Inc. paid for its 25% ownership (i.e. January 1, 2021), given the following information that you were able to find: Value of the Investment account in Y Inc. at the end of 2023 was $97,000 Y's net income and declared dividends for the following three years are as follows: Net Income (loss) Dividends 2021 $50,000 $20,000 2022 $70,000 $80,000 2023 $30,000 $60,000arrow_forwardThe shareholders of Bread Company have voted in favor of a buyout offer from Butter Corporation. Information about each firm is given here: Bread Butter Price-earnings ratio 7.2 14.4 Shares outstanding 73,000 146,000 Earnings $ 210,000 $ 630,000 Bread’s shareholders will receive one share of Butter stock for every three shares they hold in Bread. a-1. What will the EPS of Butter be after the merger? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) a-2. What will the PE ratio be if the NPV of the acquisition is zero? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What must Butter feel is the value of the synergy between these two firms?arrow_forwardABC has 1.00 million shares outstanding, each of which has a price of $17. It has made a takeover offer of XYZ Corporation, which has 1.00 million shares outstanding, and a price per share of $2.52. Assume that the takeover will occur with certainty and all market participants know this. Furthermore, there are no synergies to merging the two firms. a. Assume ABC made a cash offer to purchase XYZ for $3.41 million. What happens to the price of ABC and XYZ on the announcement? What premium over the current market price does this offer represent? b. Assume ABC makes a stock offer with an exchange ratio of 0.14. What happens to the price of ABC and XYZ this time? What premium over the current market price does this offer represent? c. At current market prices, both offers are offers to purchase XYZ for $3.41 million. Does that mean that your answers to parts (a) and (b) must be identical? Explain.arrow_forward
- On January 5, 2018 Johnson Co. announced their planned acquisition of Smith Co. The following is a summary of the consideration to be paid for the acquisition. Cash: $10 million Stock: 1 million shares of Johnson Co. common stock. At January 5 the market price of the stock was $20 per share, but as of the date the transaction closed, Johnson Co. stock was trading at $25 per share. Contingent Consideration: The selling shareholders of Smith Co. are entitled to receive $2 million upon receipt of FDA approval (by December 31, 2018) of a medical device Smith is developing that is under review by the FDA. FDA approval is the sole contingency which must be resolved for the contingent consideration to be paid, however if approval is not received by the deadline, no payment is due. As of the acquisition date, Johnson believes there is 80% likelihood the contingent consideration will be paid. 1. What is the amount of consideration used to record this business combination under IFRS? Under US…arrow_forwardConsider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T 1,300 $23 Shares outstanding 5,400 Price per share $53 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $7,900. Firm T can be acquired for $25 per share in cash or by exchange of stock wherein B offers one of its share for every two of T's shares. Are the shareholders of Firm T better off with the cash offer or the stock offer? O Share offer is better O Cash offer is better At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Exchange ratioarrow_forwardCBA Corp. is worth $15 million as a stand-alone firm. ABC Corp. has offered 350,000 shares valued at $50 each to acquire CBA. After the announcement, however, the price of ABC's shares falls to $45. What was the cost of the merger?arrow_forward
- Dongle Corp. is analysing an acquisition of Tingle Inc. Dongle has 10 million shares outstanding, which sell for $40 each. Tingle has 5 million shares outstanding, which sell for $20 each. The merger gains are estimated at $25 million. If Dongle Corp. has a price-earnings ratio of 12 and Tingle has a P/E ratio of 8, what should be the P/E ratio of the merged firm? Assume in this case that the merger is financed by an issue of new Dongle Corp. shares. Tingle will get one Dongle share for every two Tingle shares held. (Do not round intermediate calculations. Round your answer to 2 decimal places.) P/E 18.14arrow_forwardAs a corporate finance analyst specializing in M&A deals, you are given the following pre-merger information about Jupiter, the bidding firm and Venus, the target firm. Assume that both firms have no debt outstanding. Jupiter Venus 4,100 1,800 $18 Shares outstanding Price per share $43 Jupiter has estimated that the value of the synergistic benefits from acquiring Venus is $6,000. i) If Venus is willing to be acquired for $20.50 per share in cash, compute the NPV of the merger. ii) Calculate the price per share of the merged firm based on your answer in part (i). iii) Suppose Venus is agreeable to a merger by an exchange of stock. If Jupiter offers one of its shares for every two of Venus's shares, compute what will the price per share of the merged firm be? iv) Based on your answer in part (iii), calculate the NPV of the merger. v) Explain which financing method (cash or stock exchange) is more attractive for Venus's shareholders.arrow_forwardWagas Corporation and Tapat Company merged as of January 1, 2014. To effect the merger, Wagas paid finder's fees of P40,000, legal fees of P13,000, audit fees related to the stock issuance of P10,000, stock registration fees of P5,000, and stock listing application fees of P4,000. Based on the preceding information: P72,000 of stock issue costs are treated as goodwill. P19,000 of stock issue costs are treated as a reduction in share premium. P19,000 of stock issue costs are expensed. P72,000 of stock issue costs are expensed.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Stock Market Index Definition (BEGINNER FRIENDLY EXPLANATION!); Author: It's Your Girl Rose;https://www.youtube.com/watch?v=LxI12aUaabc;License: Standard Youtube License