Kunla Ltd and Cunta Ltd intend to merge. The following were observed just before the merger announcement.   Kunla Ltd Cunta Ltd Market price per share GH¢ 400 GH¢200 Number of shares 2,000,000 1,000,000 Market value of firm GH¢ 800,000,000 GH¢ 200,000,000 The proposed merger will create GH¢50,000,000 in synergies. Kunla Ltd intends to pay GH¢ 130,000,000 cash for Cunta Ltd. What is the cost of the merger to Kunla Ltd? Compute the NPV of the merger. The managers

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
icon
Related questions
Question

Kunla Ltd and Cunta Ltd intend to merge. The following were observed just before the merger announcement.

 

Kunla Ltd

Cunta Ltd

Market price per share

GH¢ 400

GH¢200

Number of shares

2,000,000

1,000,000

Market value of firm

GH¢ 800,000,000

GH¢ 200,000,000

The proposed merger will create GH¢50,000,000 in synergies. Kunla Ltd intends to pay GH¢ 130,000,000 cash for Cunta Ltd.

  1. What is the cost of the merger to Kunla Ltd?
  2. Compute the NPV of the merger.
  3. The managers of these firms have proposed to merge to diversify their activities and to reduce risk. Should you pay a premium for the merged firm?
  4. What convincing reasons can these managers give for the proposed merger?
  5. What roles do investment banks play in facilitating M&A deals?
Expert Solution
steps

Step by step

Solved in 4 steps

Blurred answer
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education