Fundamentals of Financial Management, Concise Edition
Fundamentals of Financial Management, Concise Edition
9th Edition
ISBN: 9781337087544
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 12, Problem 11Q
Summary Introduction

To explain: Post audit with its usage and problems associated with it.

Introduction:

Post Audit:

Post audit is a technique, through which actual outcome are compared to the standards set by the business to evaluate the performance of the business.

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Assume that the following statements of financial position are stated and a book value.  Alpha Corporation  Current Assets  $15,000  Current Liabilities  $5,400  Net Fixed Assets  39,000  Long-Term Debt  10,100     Equity  38,500        $54,000     $54,000    Beta Corporation  Current Assets  $3,600  Current Liabilities  $1,400  Net Fixed Assets  6,700  Long-Term Debt  2,100        Equity  6,800     $10,300     $10,300  Suppose the fair market value of Beta’s fixed assets is $9,500 rather than the $6,700 book value shown. Alpha pays $17,300 for Beta and raises the needed funds through an issue of long-term debt. Construct the post-merger statement of financial position now, assuming that the purchase method of accounting is used.
The shareholders of Barley Corporation have voted in favor of a buyout offer from Wheat Corporation. Information about each firm is given here:    Barley  Wheat  Price/earnings ratio  13.5  21  Shares outstanding  90,000  210,000  Earnings  $180,000  $810,000  Barley shareholders will receive one share of Wheat stock for every three shares they hold of Barley.  Required  What will the EPS of Wheat be after the merger? What will be the P/E ratio if the NPV of the acquisition is 0?  What must Wheat feel is the value of the synergy between these two firms? Explain how your answer can be reconciled with the decision to go ahead with the takeover?
Black Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its extraction business. Management has already determined that acquisition of the system has a positive NPV. The system costs $9.4 million and qualifies for a 25% CCA rate. The equipment will have a $975,000 salvage value in five years. Black Oil’s tax rate is 36%, and the firm can borrow at 9%. Cape Town Company has offered to lease the drilling equipment to Black Oil for payments of $2.15 million per year. Cape Town’s policy is to require its lessees to make payments at the start of the year.  Suppose it is estimated that the equipment will have no savage value at the end of the lease. What is the maximum lease payment acceptable to Black Oil now?

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Fundamentals of Financial Management, Concise Edition

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