Bundle: Contemporary Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
14th Edition
ISBN: 9781337587563
Author: MOYER, R. Charles; McGuigan, James R.; Rao, Ramesh P.
Publisher: Cengage Learning
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Chapter 17, Problem 7QTD
Summary Introduction
To discuss: The techniques accessible to the firm for decelerating disbursements.
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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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