Parentis Ltd. has a value of $150million while the value of Sandis Ltd. is $70million. A merger between the two has just gone through and cost savings with a present value of $ 10million is expected to be achieved. Parentis Ltd. paid cash of $85million for the entire paid up capital of Company B. Required i. What is the value of the two firms after the merger? ii. Calculate the cost of the merger to the shareholders of Parentis Ltd. iii. What is the portion of the gain/loss due Parentis Ltd.’s shareholders? iv. From the perspective of the shareholders of Company A, is there an economic justification for the merger?
Parentis Ltd. has a value of $150million while the value of Sandis Ltd. is $70million. A merger between the two has just gone through and cost savings with a present value of $ 10million is expected to be achieved. Parentis Ltd. paid cash of $85million for the entire paid up capital of Company B. Required i. What is the value of the two firms after the merger? ii. Calculate the cost of the merger to the shareholders of Parentis Ltd. iii. What is the portion of the gain/loss due Parentis Ltd.’s shareholders? iv. From the perspective of the shareholders of Company A, is there an economic justification for the merger?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Parentis Ltd. has a value of $150million while the value of Sandis Ltd. is $70million. A merger between the two has just gone through and cost savings with a present value of $ 10million is expected to be achieved. Parentis Ltd. paid cash of $85million for the entire paid up capital of Company B.
Required
i. What is the value of the two firms after the merger?
ii. Calculate the cost of the merger to the shareholders of Parentis Ltd.
iii. What is the portion of the gain/loss due Parentis Ltd.’s shareholders?
iv. From the perspective of the shareholders of Company A, is there an economic
justification for the merger?
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