PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 31, Problem 6PS
Merger motives Suppose you obtain special information-information unavailable to investors-indicating that Backwoods Chemical’s stock price is 40% undervalued. Is that a reason to launch a takeover bid for Backwoods? Explain carefully.
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A company has recently purchased some stock of a competitor as part of a long-term plan to acquire the competitor. However, it is somewhat concerned that the market price of this stock could decrease over the short run. The company could hedge against the possible decline in the stock’s market price by
a. Purchasing a call option on that stock.
b. Purchasing a put option on that stock.
c. Selling a put option on that stock.
d. Obtaining a warrant option on that stock.
ABC Co. has recently purchased ordinary shares of XYZ Co, one of its competitors, as part of a long-term plan to acquire the XYZ Co. However, ABC Co. is somewhat concerned that the market price of XYZ Co. ordinary shares could decrease over the short run. ABC Co. could hedge this risk by ________ on XYZ Co. ordinary shares.a. purchasing a call optionb. purchasing a put optionc. selling a put optiond. obtaining a warrant option
1. Suppose many investors are still interested in acquiring the shares of Company ABC after the initial public offering, what kind of Financial market should they go to from whom would they purchase this shares?
2. What would happen if there are no Financial market in the Financial system?
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- Which of the following does not apply to secondary markets? Group of answer choices Many investors might be unwilling to provide resources to corporations if there is no available mechanism for the future sale of their stocks and bonds to others. Transactions help to establish market prices for additional shares that may be issued in the future. Transactions are important to the efficient allocation of resources in our economy. New resources are provided when shares of stock are sold by the corporation to the initial owners.arrow_forwardIf an acquisition does not create value and the market is smart, then the: Multiple Choice earnings per share of the acquiring firm must be the same both before and after the acquisition. earnings per share can change but the stock price of the acquiring firm should remain constant. price per share of the acquiring firm should increase because of the growth of the firm. earnings per share will most likely increase while the price-earnings ratio remains constant. price-earnings ratio should remain constant regardless of any changes in the earnings per share.arrow_forwardWhich of the following should lead to a lower share price: (as the result of a mechanical effect, not due to signaling) 1. firm does a stock split 2. firm pays dividends 3. firm repurchases shares 4. firm issues shares 5. firm issues debt 6. firm makes an acquisition at a fair price, with negligible synergies O 1,2,3 0 23 O 1,2,3,4,5,6 O 2,3,5,6 O 1,2,3,5 0 1,2 O 2,3,5arrow_forward
- A finding that would provide evidence AGAINST the semi-strong form of the EMT. O Expansion disclosure reactions take considerable time. Technical analysis is worthless in determining stock prices. O Money managers do not outperform the market as à whole. O Investors do not earn abnormal profits after merger announcement. O The price decline of large secondary offerings is permanent when outsiders are selling.arrow_forwardWhich one of the following is true regarding the methods of issuing new equities? Issuing firms bear the risk of not able to sell entire shares in Firm Commitment method. Issuing firms bear risk of not able to sell entire shares in Best Effort method. Investment banks bear risk of not able to sell entire shares in Dutch Auction method. Investment banks bear risk of not able to sell entire shares in Best Effort method. None of the above.arrow_forwardFor Question 1, 2, and 3, use the following information: 1.) Consider 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 Shares outstanding 6,500 1,500 Price per share $ 45 $ 15 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $10,600. If Firm T is willing to be acquired for $20 per share in cash, what is the NPV of the merger? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Please round to the nearest dollar and format as "X,XXX" 2.) Consider 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 Shares outstanding 6,500 1,500 Price per share $ 45 $…arrow_forward
- 1.What type of trading order are you likely to give your broker in each of the three circumstances below? a. You want to buy shares of company ABC to diversify your portfolio. You believe the share price is good and you want the trade done very quickly and cheaply. b. You want to buy shares of ABC into your portfolio of investment, but your analysis shows that the current stock price is too high given the firms prospects. You would like to purchase the shares at a price about 10% lower than the current market price. c. You are planning to purchase a brand-new car sometime in the next month or two and will sell your shares of ABC to provide the funds for your own down payment. You believe that the share price of ABC will rise in the coming few weeks. However, if you are wrong and the share price should drop suddenly you will not be able to afford to purchase the car. Therefore, you want to hold on to the shares for as long as possible, but still protect yourself against the risk of a…arrow_forwardWhich of the following statements is correct? O Flotation costs under a best-efforts arrangement typically are less for a given new equity issue than the costs associated with an underwritten offering, and the corporation is more certain of getting the needed funds under a best-efforts offering. This is why best efforts deals are most common. O If a firm decides to issue securities through a direct (or private) placement, then the underwriting syndicate that is formed to distribute the securities to the public may. at its discretion, decide either to guarantee or not to guarantee the sale of the securities. O If the demand curve for a firm's stock is relatively flat. the firm will havea more difficult time raising a large amount of new equity funds for expansion than would be true if this demand curve were steeper. OIt is possible for a firm to go public, and yet not ralse any additional capital. O None of these.arrow_forwardIn defending against a hostile takeover, the strategy that involves teh target firm creating securities that give their holders certain rights that become effective when a takeover is attempted is called the ______________ strategy. Select one: a. shark repellent b. poison pill c. greenmail d. golden parachutearrow_forward
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