EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Chapter 12, Problem 7P

a)

Summary Introduction

To discuss: The trades made in response to daily price changes.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

b)

Summary Introduction

To discuss: Whether the index is suitable as a market proxy.

Introduction:

A particular broad that denotes the entire stock market is termed as market proxy. It is served as the base for index funds such as the S&P 500 index (considered as the best known market proxy in the Country U market).

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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?

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EBK CORPORATE FINANCE

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