Bhupatbhai Problem 21-9 Merger Gains and Costs (LO2)Velcro Saddles is contemplating the acquisition of Skiers' Airbags Incorporated. The values of the two companies as separate entitiesare $58 million and $29 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketingand administrative costs by $690,000 per year in perpetuity. Velcro Saddles is willing to pay $34 million cash for Skiers'. Theopportunity cost of capital is 10%.a. What is the gain from the merger?Note: Enter your answer in millions rounded to 2 decimal places.b. What is the cost of the cash offer?Note: Enter your answer in millions.c. What is the NPV of the acquisition under the cash offer?Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.a. Gain from the mergerb. Cost of the cash offerc. NPVmillionmillionmillion

Part 2: Explanation:Step 1: Calculate the gain from the merger.The gain from the merger is the…

Answered: Problem 21-9 Merger Gains and Costs…

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter21: Mergers And Acquisitions

Section: Chapter Questions

Problem 8IC

See similar textbooks

Similar questions

15
Ch 26: Assignment - Mergers and Corporate Control Widget Corp., which is considering the acquisition of Exteter Enterprise Inc., estimates that acquiring Exteter will result in an incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company: Data Collected (in millions of dollars) Year 1 Year 2 Year 3 EBIT $13.0 $15.6 $19.5 Interest expense 5.0 5.5 6.0 Debt 35.2 41.6 44.8 Total net operating capital 107.1 109.2 111.3 Exteter Enterprise Inc. is a publicly traded company, and its market-determined pre-merger beta is 1.00. You also have the following information about the company and the projected statements: •Exteter currently has a $38.00 million market value of equity and $24.70 million in debt. The risk-free rate is 3.5%, there is a 5.60% market risk premium, and the Capital Asset Pricing Model produces a pre-merger required rate of return on equity ISL of 9.10%. •Exteter's cost…
Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two companies as separate entities are $50 million and $25 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $650,000 per year in perpetuity. Velcro Saddles is willing to pay $27 million cash for Skiers’. The opportunity cost of capital is 10%. a. What is the gain from the merger? (Enter your answer in millions rounded to 2 decimal places.) b. What is the cost of the cash offer? (Enter your answer in millions.) c. What is the NPV of the acquisition under the cash offer? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $500,000 per year in perpetuity. Velcro Saddles is willing to pay $14 million cash for Skiers’. The opportunity cost of capital is 8%. a. What is the gain from the merger? b. What is the cost of the cash offer? c. What is the NPV of the acquisition under the cash offer? Please answer fast i give you upvote.
Vala
Velcro Saddles is contemplating the acquisition of Skiers Airbags Incorporated. The values of the two companies as separate entities are $46 million and $23 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $630,000 per year in perpetuity, Velcro Saddles is willing to pay $28 million cash for Skiers'. The opportunity cost of capital is 7%. What is the gain from the merger? Note: Enter your answer in millions rounded to 2 decimal places. What is the cost of the cash offer? Note: Enter your answer in millions. What is the NPV of the acquisition under the cash offer? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
Company A is preparing a deal to acquire company B. One analyst estimated that the merger would produce 375 million dollars of annual cost savings, from operations, general and administrative expenses and marketing. These annual cost savings are expected to begin four years from now and grow at 2.5% a year. Also, the analyst is assuming an after-tax integration cost of 0.75 billion and taxes of 20%. Assume that the integration cost of 0.75 billion happens when the merger is completed (year 0). The analyst is using a cost of capital of 10% to value the synergies. Company B's equity is trading at 5.3 B dollars (market value of equity). Given this, Company A is planning to pay a 30% premium for company B. Compute the value of the synergy (In $ Million) as estimated by the analyst. (Please show your calculations in Detail). Does the estimate of synergies in A, justify the premium that company A offered to company B? (Please briefly explain the rationale in Detail).
man.2 Orca Industries is considering the purchase of Shark Manufacturing. Shark is currently a supplier for Orca and the acquisition would allow Orca to better control its material supply. The current cash flow from assets for Shark is $6.9 million. The cash flows are expected to grow at 9 percent for the next five years before leveling off to 6 percent for the indefinite future. The costs of capital for Orca and Shark are 13 percent and 11 percent, respectively. Shark currently has 3 million shares of stock outstanding and $25 million in debt outstanding. What is the maximum price per share Orca should pay for Shark? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Company A is preparing a deal to acquire company B. One analyst estimated that the merger would produce 175 million dollars of annual cost savings, from operations, general and administrative expenses and marketing. These annual cost savings are expected to begin three years from now, and grow at 3% a year. In addition the analyst is assuming an after-tax integration cost of 0.25 billion, and taxes of 21%. Assume that the integration cost of 0.25 billion happens right when the merger is completed (year 0). The analyst is using a cost of capital of 9% to value the synergies. Company B’s equity is trading at 4.3 B dollars (market value of equity). Company A is planning to pay a 32% premium for company B. a) Compute the value of the synergy as estimated by the analyst. Please show your calculations. b) Does the estimate of synergies in a) justify the premium that company A offered to company B?
None
Value of a mixed stream Harte Systems, Inc., a maker of electronic survillance equipment, is considering selling the rights to market its home security system to a well-known hardware chain. The proposed deal calls for the hardware chain to pay Harte $28,000 and $29,000at the end of years 1 and 2 and to make annual year-end payments of $10,000 in years 3 through 9. A final payment to Harte of $10,000 would be due at the end of year 10. b. If Harte applies a required rate of return of 12% to them, what is the present value of this series of payments? c. A second company has offered Harte an immediate one-time payment of $90,000 for the rights to market the home security system. Which offer should Harte accept?
Company A is preparing a deal to acquire company B. One analyst estimated that the merger would produce 85 million dollars of annual cost savings, from operations, general and administrative expenses and marketing. These annual cost savings are expected to begin two years from now, and grow at 2.5% a year. In addition the analyst is assuming an after-tax integration cost of 0.1 billion, and taxes of 20%. Assume that the integration cost of 0.1 billion happens one year after the merger is completed (year 1). The analyst is using a cost of capital of 10% to value the synergies. Company B’s equity is trading at 2.3 B dollars (market value of equity). Company A is planning to pay a 32% premium for company B. a) Compute the value of the synergy as estimated by the analyst. b) does the estimate of synergies justify the premium? Could you show me how to work this out in an excel sheet?

SEE MORE QUESTIONS

Recommended textbooks for you

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781285867977

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781285867977

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CFIN

Finance

ISBN:

9781337671743

Author:

BESLEY

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SWFT Comprehensive Volume 2019

Accounting

ISBN:

9780357233306

Author:

Maloney

Publisher:

Cengage

SEE MORE TEXTBOOKS