PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 31, Problem 8PS
a)
Summary Introduction
To determine: The missing figures.
b)
Summary Introduction
To determine: The number of shares exchanged
c)
Summary Introduction
To determine: Cost of merger for Company WE.
d)
Summary Introduction
To determine: Change in total market value of Company WE.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Ch. 29. Calculating Synergy. The Left Foot Company has offered $426 million cash for the common stock in the Right Foot Company. Based on recent market information, the Right Foot Company is worth $389 million as an independent operation. If the merger makes economic sense for Holmes, what is the minimum estimated value of the synergistic benefits from the merger? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
Round to the nearest dollar and format as "XX,XXX,XXX"
Koala Technologies is considering the acquisition of Laser Industries in a stock-for-stock exchange. Selected financial
data for the two companies is shown below. An immediate synergistic earnings benefit of $2.5 million is expected in
this merger.
Sales (millions)
Net income (millions)
Koala
$90
$9.4
O a. $2.23
O b. $2.75
O c. $2.25
O d. $2.21
Laser
$10
$1.2
Common shares outstanding (millions) 4.0
0.8
Earnings per share
$2.35
$1.50
Common stock (price per share) $35.00
$27.00
Calculate the post-merger EPS if the Laser shareholders accept an offer of $33.25 a share in a stock-for-stock exchange
Apex Corporation is considering the purchase of Pinnacle Company in a stock-for-stock exchange. Selected data on the two companies are shown in the following table:
Apex
Pinnacle
$845
$120
40
36
Sales (millions)
Earnings after taxes (millions)
Common shares outstanding (millions)
Share price
Earnings per share
Dividends per share.
P/E ratio
Dividend payout ratio
Assume that there are no synergistic benefits as the result of the merger. Determine EPS for the combined company if Apex offers a (Round your answers to three decimal places):
a. 10 percent premium for Pinnacle
$
b. 20 percent premium for Pinnacle
$
c. 30 percent premium for Pinnacle
$2,190
$ 280
70
72
$
$
$
4.00
2.00
18
50%
$
$
3.00
1.20
12
40%
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
- Croatia Inc. is in the process of acquiring Vistara Inc. on a share exchange basis. The information related to the two companies is provided below. Profit after tax Shares outstanding Earnings per Share PE Ratio EPS and Croatia Inc. $14,000,000 1,500,000 $8 15 As an analyst of Croatia Inc., you are required to calculate the following: Pre-Merger Market Value per Share of both companies. The maximum share exchange ratio Croatia Inc. can offer without the dilution of: Market Value per Share Vistara Inc. $6,000,000 1,600,000 $5 10 Note: Do not round off any intermediate calculations. Only the rations shall be rounded off up to four decimals. (1) Pre-Merger MV: Croatia Inc- $50. Vistara Inc. = $120.(1) (1) 0.6250 (2) 0.4167 (1) Pre-Merger MV: Croatia Inc. $120. Vistara Inc = $50. () (1) 0.6200 (2) 0.4221 (1) Pre-Merger MV: Croatia Inc.= $120, Vistara Inc. $50 (1) (1) 06250 (2) 04167 (1) Pre-Merger MV: Croatia Inc.= $110, Vistara Inc. = $120.) (1) 0.6200 (2) 0.4221arrow_forwardThere are only five companies in the market. Company B and Company D are planning to merge. Market shares of all the competitors are shown in the table below. Company Market share, %% A 4040 B 2525 C 1414 D 1212 E 99 Calculate the difference between the HHI value after the proposed merger and the initial value. Write the exact answer. Do not round.arrow_forwardCalculating Synergy. The Left Foot Company has offered $426 million cash for the common stock in the Right Foot Company. Based on recent market information, the Right Foot Company is worth $389 million as an independent operation. If the merger makes economic sense for Holmes, what is the minimum estimated value of the synergistic benefits from the merger? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Round to the nearest dollar and format as "XX,XXX,XXX"arrow_forward
- Majan Group is considering the acquisition of Mazoon Company in which Mazoon Company would receive OMR 66.50 for each share of its common stock. The Majan Group does not expect any change in its price/earnings multiple after the merger. Majan Group is considering either undertaking the acquisition either through a stock for stock transaction, an all-cash transaction or in a stock and cash transaction. Majan Group intends to borrow the cash involved in the transaction in an interest only loan at an annual rate of 6% with the principal to be repaid as a in 15 years. If the stock and cash transaction is to be considered, Majan Group will pay a purchase price of one share of its stock plus a cash amount equal the difference between the offer share price and the target's share price. The marginal tax rate of Majan Group is 40%. Majan Group Mazoon Company Earnings available for common stock OMR 184,450 OMR 38,150 Number of shares of 81,900 24,500 common stock outstanding Market price per…arrow_forwardMajan Group is considering the acquisition of Mazoon Company in which Mazoon Company would receive OMR 66.50 for each share of its common stock. The Majan Group does not expect any change in its price/earnings multiple after the merger. Majan Group is considering either undertaking the acquisition either through a stock for stock transaction, an all-cash transaction or in a stock and cash transaction. Majan Group intends to borrow the cash involved in the transaction in an interest only loan at an annual rate of 6% with the principal to be repaid as a in 15 years. If the stock and cash transaction is to be considered, Majan Group will pay a purchase price of one share of its stock plus a cash amount equal the difference between the offer share price and the target's share price. The marginal tax rate of Majan Group is 40%.Majan Group Mazoon CompanyEarnings available for common stockOMR 184,450OMR 38,150Number of shares of common stock outstanding81,90024,500Market price per shareOMR…arrow_forwardMajan Group is considering the acquisition of Mazvon Company in which Mazoon Company would receive OMR 66.50 for each share of its common stock. The Majan Giroup does not expect any change in its price/earnings multiple after the merger. Majan Group is considering either undertaking the acquisition either through a stock for stock transaction, an all-cash transaction or in a stock and cash transaction. Majan Group intends to borrow the cash involved in the transaction in an interest only loan at an annual rate of 6% with the principal to be repaid as a in 15 years. If the stock and cash transaction is to be considered, Majan Group will pay a purchase price of one share of its stock plus a cash amount equal the difference between the offer share price and the target's share price. The marginal tax rate of Majan Group is 40%. Majan Group Mazoon Company Earnings available for OMR 184,450 OMR 38,150 common stock Number of shares of 81,900 24,500 common stock outstanding Market price per…arrow_forward
- Presto Industries is considering the acquisition of the Kasa Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Presto Kasa Sales (in millions) 1,500 350 Net income (in millions) 300 80 Common shares outstanding (in millions) 50 20 Earnings per share 6.00 4.00 Dividends per share 2.50 0.50 Common stock market price 90 160.00 Price/earnings ratio 15.00 40.00 1. Calculate the exchange ratio if Presto offers the Kasa stockholders a 12.50% premium over Kasa’s current market price. 2. Calculate the post-merger earnings per share if the exchange ratio is 1.50 shares of Presto for each share of Kasa. (Assume total post-merger earnings are $380 million.) 3. What is Presto’s post-merger share price if the post-merger price/earnings ratio is 26, and the exchange ratio is 1.70? Assume total post-merger earnings are $380…arrow_forwardXterm R US has offered $178,500 cash for all of the common stock of Outdoor Co. Based on recent market information Outdoor Co is worth $174,200 as an independent operation. If the merger makes economic sense for Xterm R US, what is the minimum estimated value of the synergistic benefits from the merger? A)4300 B) 4730 C) 5160 D) 4000 E) 4945arrow_forwardFirm 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_forward
- Pearl, Incorporated, has offered $434 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $402 million as an independent operation. If the merger makes economic sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Minimum synergistic benefitarrow_forwardWilson Industries is considering the acquisition of the Blanchard Company in a stock-for-stock exchange. Selected financial data for the two companies are shown next. An immediate synergistic earnings benefit of $3 million is expected in this merger, due to cost savings. Sales (millions) Earnings after taxes (millions) Common shares outstanding (millions) Earnings per share Dividends per share Common stock (price per share) $ +A Wilson $84 $21 8 $ 2.625 $ 2.00 $34 Blanchard $74 $9.0 6 Calculate the postmerger earnings per share if the Blanchard shareholders accept an offer of $19 per share in a stock-for-stock exchange. Round your answer to the nearest cent. $1.50 $ 1.10 $15.00arrow_forwardPrior to a potential merger Ross Co has 4500 shares outstanding at a market price per share of $31. Bulbs Inc has 2,800 shares outstanding at $18 per share. Assume Ross Co has estimated the valueof the synergistic benefits from acquiring Bulb Inc to be $3,500. Nowther firm has outstanding debt. The acquiring firm offered a price of $19.75 per share to the target. If the deal goes through, what is the merger premium? A) 4900 B) 3500 C) 2800 D) 6125 E) 0arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT