It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share data): January 1, 2017 ($ in millions) Pegasus Chimera GAAP revenue $150.40 $112.00 GAAP net income $14.04 $9.92 Tax rate 40% 35% Assume all activities below occur on January 1, 2017: You also obtained the following transaction-related data: Offer value Sources of funds Refinanced debt Transaction fees Financing fees Cost synergies Revenue synergies Goodwill Asset write ups What is the sum of all acquisition adjustments pertaining to the Acquisition Financing, needed to calculate 2017 pro forma (combined) GAAP pre-tax income? Hint: There will be three components - lost interest income, interest from new debt (acquisition debt & Chimera debt), and reduced Chimera debt interest. O 21.66 O-3.10 O -3.96 O -4.01 $132.0 million in cash 50% of the offer value funded using Pegasus's cash reserve, currently generating a 1% annual return. Remainder of the funds needed to complete the deal raised via a new 5-year debt issuance at 5% annual interest rate. Chimera has $5 million in debt outstanding at 4% annual interest which will be refinanced as part of the acquisition $2 million pretax $1 million $2 million pretax. Apply the acquirer's tax rate on the cost synergies. $1 million in additional revenue due to cross selling opportunities. Assume revenue synergies are subject to the acquirer's standalone tax rate and profit margin. $20 million None O -4.16
It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share data): January 1, 2017 ($ in millions) Pegasus Chimera GAAP revenue $150.40 $112.00 GAAP net income $14.04 $9.92 Tax rate 40% 35% Assume all activities below occur on January 1, 2017: You also obtained the following transaction-related data: Offer value Sources of funds Refinanced debt Transaction fees Financing fees Cost synergies Revenue synergies Goodwill Asset write ups What is the sum of all acquisition adjustments pertaining to the Acquisition Financing, needed to calculate 2017 pro forma (combined) GAAP pre-tax income? Hint: There will be three components - lost interest income, interest from new debt (acquisition debt & Chimera debt), and reduced Chimera debt interest. O 21.66 O-3.10 O -3.96 O -4.01 $132.0 million in cash 50% of the offer value funded using Pegasus's cash reserve, currently generating a 1% annual return. Remainder of the funds needed to complete the deal raised via a new 5-year debt issuance at 5% annual interest rate. Chimera has $5 million in debt outstanding at 4% annual interest which will be refinanced as part of the acquisition $2 million pretax $1 million $2 million pretax. Apply the acquirer's tax rate on the cost synergies. $1 million in additional revenue due to cross selling opportunities. Assume revenue synergies are subject to the acquirer's standalone tax rate and profit margin. $20 million None O -4.16
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Use the following data to answer this question.
It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share
data):
January 1, 2017 ($ in millions) Pegasus Chimera
GAAP revenue
$150.40 $112.00
GAAP net income
$14.04 $9.92
Tax rate
40%
35%
Assume all activities below occur on January 1, 2017:
You also obtained the following transaction-related data:
Offer value
Sources of
funds
Refinanced debt
Transaction fees
Financing fees
Cost synergies
Revenue
synergies
Goodwill
Asset write ups
What is the sum of all acquisition adjustments pertaining to the Acquisition Financing, needed to calculate 2017 pro forma (combined) GAAP pre-tax
income?
Hint: There will be three components - lost interest income, interest from new debt (acquisition debt & Chimera debt), and reduced Chimera debt interest.
O 21.66
O -3.10
O -3.96
O -4.01
$132.0 million in cash
50% of the offer value funded using Pegasus's cash reserve, currently generating a 1% annual return. Remainder of the funds needed to complete the deal raised
via a new 5-year debt issuance at 5% annual interest rate.
Chimera has $5 million in debt outstanding at 4% annual interest which will be refinanced as part of the acquisition
$2 million pretax
$1 million pretax
$2 million pretax. Apply the acquirer's tax rate on the cost synergies.
$1 million in additional revenue due to cross selling opportunities. Assume revenue synergies are subject to the acquirer's standalone tax rate and profit margin.
$20 million
None
O -4.16
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