Consider the following information about Firm A and Firm T:ItemFirm A (Acquiring firm)Firm T (Target firm)Price per share $20 $15Outstanding shares 50 25Total market value$1000.00$375 Total cost of the acquisition is $500.00 and the merger is estimated to create a synergistic gain of $700.00. What is the merger premium?Select one:a.$150.00b.$135.00c.$125.00d.$175.00

Mergers and acquisitions are business transactions in which the ownership of companies,…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Finance Loki Inc. and Thor Inc. have entered into a stock swap merger agreement whereby Loki will pay a 35% premium over Thor’s pre-merger price. A. If Thor’s pre-merger price per share was $37 and Loki’s was $52, what exchange ratio will Loki need to offer? B. On the day of the merger announcement, the increase in Thor (the target firm’s) stock price will be ______(higher/lower) than 35% (the takeover premium). C. Based on your answer in part B of this question, explain why you think Thor’s stock price increase will be higher or lower than the takeover premium at the time of the merger announcement.
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