entley Corporation and Rolls Manufacturing are considering a merger. The possible ates of the economy and each company's value in that state are shown here: State Boom Probability Bentley $ 330,000 130,000 .70 Recession .30 Rolls $300,000 100.000 entley currently has a bond issue outstanding with a face value of $145,000. Rolls is an l-equity company. What is the value of each company before the merger? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Value of Bentley Value of Rolls

entley Corporation and Rolls Manufacturing are considering a merger. The possible ates of the economy and each company's value in that state are shown here: State Boom Probability Bentley $ 330,000 130,000 .70 Recession .30 Rolls $300,000 100.000 entley currently has a bond issue outstanding with a face value of $145,000. Rolls is an l-equity company. What is the value of each company before the merger? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Value of Bentley Value of Rolls

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Penn Corporation is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flow by $1 million indefinitely. The current market value of Teller is $53 million and that of Penn is $87 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $59 million in cash to Teller's shareholders. a. What is the cost of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the NPV of each alternative? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) $ 66,000,000,000,000 a. Cash cost a. Equity cost $ b. NPV cash b. NPV equity 66 c. Which alternative should Penn choose?
Dark Creek Corporation's CEO is selecting between two mutually exclusive projects. Thecompany needs to make a $3,500 payment to bondholders at the end of the year. To minimizeagency costs, the firm's bondholders decide to use a bond covenant to stipulate that thebondholders can demand an additional payment if the company chooses to take on the high-volatility project. How much additional payment to bondholders would make stockholdersindifferent between the two projects? Cash flows pertaining to the two projects are shown inthe table below.
Look at a recent example of a merger announcement, and log on to the website of the acquiring company. What reasons does the acquirer give for buying the target? How does it intend to pay for the target—with cash, shares, or a mixture of the two? Can you work out how much the target’s shareholders will gain from the offer? Is it more or less than would be the case for an average merger? Now log on to finance.yahoo.com and find out what happened to the stock price of the acquiring company when the merger was announced. Were shareholders pleased with the announcement?
The Whistling Straits Corporation needs to raise $60 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $21 per share and the company's underwriters charge a spread of 7 percent, how many shares need to be sold? (Do not round intermediate calculations and round your answer to nearest whole number, e.g., 1,234,567.) Number of shares offered 3,133,641
Advance Wear is merging with Swish. Advance Wear has debt with a face value of $80 and Swish has debt with a face value of $40. Swish' stockholders will receive stock in the combined firm in an amount equal to the standalone market value of Swish. The premerger values of the firms given two economic states with equal probabilities of occurrence are as follows: Premerger Values: Advance Wear Assets Debt Equity Swish Stage 1 $ 160 80 80 Stage 2 $40 40 0 Market Value $80 40 40 $ 100 60 40 Assets $ 20 Debt 20 0 Equity If the merger provides no synergy, what will be the gain or loss to the current shareholders of Advance Wear? $50 30 20
Rearden Metal has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. Rearden Metal is thinking of buying Associated Steel, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. Rearden Metal will pay for Associated Steel by issuing new shares. There are no expected synergies from the transaction. If Rearden offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy Associated Steel, then the price per share of the combined corporation after the merger will be closest to: Answer choices: A) $17.20 B) $26.00 C) $20.00 D) $19.12
companies can borrow at an 8 percent interest rate. The risk-free rate is 6 percent, and the expected return on the market is 13 percent. Bryce believes the current cost of capital for Birdie Golf is 11 percent. The beta for Hybrid Golf stock at its current capital structure is 1.30.Bryce has asked you to analyze the financial aspects of the potential merger. Specifically, he has asked you to answer the following questions:1. Suppose Hybrid shareholders will agree to a merger price of $63.25 per share. Should Birdie proceed with the merger?2. What is the highest price per share that Birdie should be willing to pay for Hybrid?3. Suppose Birdie is unwilling to pay cash for the merger but will consider a stock exchange. What exchange ratio would make the merger terms equivalent to the original merger price of $63.25 per share?4. What is the highest exchange ratio Birdie would be willing to pay and still undertake the merger?
What is the HHI for a market with 4 firms, each with one quarter of the market share? 1000 15000 2500 3000 Suppose there is a proposed merger between two of the firms in this market. The resulting market would be 3 firms, two with 25% of the market share and one with 50%. What would the new HHI be? 2950 3190 3700 3750 Is it likely that this merger will be challenged? yes no not enough information to tell
Suppose that Flight Centre has made an offer for Webjet that consists of the cash purchase of 1.4 million shares at $13 per share. The value of Webjet’s stock before the bid was made public was $11 per share. Flight Centre’s stock is trading at $20 per share, and there are 20 million shares outstanding. Flight Centre estimates that the merger synergy will be $3.5 million per year, forever. The appropriate discount rate for these gains is 12%. What is the estimated value of the Flight Centre post-merger?
he NFF Corporation has announced plans to acquire LE Corporation. NFF is trading for $ 64 per share, and LE is trading for $ 13 per share, implying a pre-merger value of LE of approximately $ 6.7 billion. If the projected synergies are $ 2.07 billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV? Question content area bottom Part 1 The maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV is enter your response here. (Round to three decimal places.)
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. Vandell's debt interest rate is 7.4%. Assume that the risk-free rate of interest is 3% and the market risk premium is 5%. Both Vandell and Hastings face a 30% tax rate. Vandell's beta is 1.20. Hastings estimates that if it acquires Vandell, interest payments will be $1,600,000 per year for 3 years. The free cash flows are supposed to be $2.4 million, $2.7 million, $3.3 million, and then $3.82 million in Years 1 through 4, respectively. Suppose Hastings will increase Vandell's level of debt at the end of Year 3 to $29.7 million so that the target capital structure will be 45% debt. Assume that with this higher level of debt the interest rate would be 8.0%, and assume that interest payments in Year 4 are based on the new debt level from the end of Year 3 and new interest rate. Free cash flows and tax shields are projected to…
Assume the Knight Corporation is considering the acquisition of Day Inc. The expected earnings per share for the Knight Corporation will be $3 with or without the merger. However, the standard deviation of the earnings will go from $2.55 to $1.95 with the merger because the two firms are negatively correlated. a. Compute the coefficient of variation for the Knight Corporation before and after the merger. (Do not round intermediate calculations and round your answers to 2 decimal places.) Pre-merger Post-merger Coefficient of Variation b. Comment on the possible impact on Knight's postmerger P/E ratio, assuming investors are risk-averse. Risk-averse investors are being offered risk and may assign a P/E ratio to postmerger earnings.

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