Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
14th Edition
ISBN: 9780133740912
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
Question
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Chapter 18, Problem 18.11P

a)

Summary Introduction

To determine: The ratio of exchange of shares in market price.

Introduction:

The market price of the acquiring firm is exchange with market price of targeted firm is termed as ratio of exchange in market price.

b)

Summary Introduction

To determine: EPS and PER of both the company.

c)

Summary Introduction

To determine: The price earnings ratio used to purchase M Company

d)

Summary Introduction

To determine: The post-merger EPS of H Company.

e)

Summary Introduction

To determine: The expected market price of the merged firm.

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Question 5 1 The common shares of Almond Beach Inc, have a beta of 0.75, offer a return of 9%, and have an historical standard deviation of return of 17%. Alternatively, the common shares of Palm Beach Inc. have a beta of 1.25, offer a return of 10%, and have an historical standard deviation of return of 13%. Both firms have a marginal tax rate of 37%. The risk-free rate of return is 3% and the expected rate of return on the market portfolio is 9½%%. 1. Which company would a well-diversified investor prefer to invest in? Explain why and show all calculations. 2. Which company Would an investor who can invest in the shares of only one firm prefer to invest in? Explain why. Use the following template to organize and present your results: Theoretical CAPM Actual offered Almond Beach Inc. Palm Beach Inc. prediction for expected return (%) return (%) Standard deviation of return (%) Beta Comments on the diversified investor's choice Comments on the individual investor's choice
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