Fundamentals of Financial Management (MindTap Course List)
Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN: 9781337395250
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
Question
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Chapter 21, Problem 4P

a.

Summary Introduction

To Determine: The discount rate that should be used to estimate the cash flows.

Introduction: A merger is the mix of two organizations into one by either shutting the old entities into one new entity or by one organization engrossing the other. In other terms, at least two organizations are united into one organization to form a merger.

b.

Summary Introduction

To Determine: The dollar value to Corporation V to Corporation A.

c.

Summary Introduction

To Determine: The maximum price per share that Corporation A should offer for Corporation V and the outcomes of Corporation A's stock price if the tender offer is accepted.

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Aubey Appliance Corporation is considering a merger with theVelmore Vacuum Company. Velmore is a publicly traded company, and its current betais 1.30. Velmore has been barely profitable, so it has paid an average of only 20% intaxes during the last several years. In addition, it uses little debt, having a debt ratio ofjust 25%.If the acquisition were made, Aubey would operate Velmore as a separate, whollyowned subsidiary. Aubey would pay taxes on a consolidated basis, and the tax rate wouldtherefore increase to 35%. Aubey also would increase the debt capitalization in the Velmoresubsidiary to 40% of assets, which would increase its beta to 1.47. Aubey’s acquisition department estimates that Velmore, if acquired, would produce the following cash flows toAubey’s shareholders (in millions of dollars):Year                       Cash Flows1                               $1.252                              1.453                               1.654                              1.855 and…
Hi. I need help with the following question please.    One company that the analysis indicated as potentially suitable for acquisition by Admiral isFavorite Food Systems Inc. Favorite Food Systems Inc. which was founded by John Favorite in 1994, is a WestCoast chain with current annual sales of approximately $75 million. In 2003, the company went public.(The Favorite family now controls about 57 percent of the common stock.) 1. The merger will generate $1.0 million in after tax earnings each year from synergies. Calculate the free cash flow from the synergies for 5 years, assuming $100,000 of depreciation for each year. 2. Develop the terminal year value of the synergies based on the fifth year of the cash flows. Assume the growth rate of the synergistic cash flows after the terminal year is 1.0% 3. Calculate the Admiral Foods post-merger income statement and earnings per share, assuming an exchange ratio of 0.45.
Asteric Corporation is evaluating acquisition of Jumbo Corporation. Asteric Corporation believes that such a merger will result in cost savings with a present value of DKK 950,000. Asteric plans to make this deal in cash by offering DKK 75 a share for all the 50,000 shares of Jumbo Corporation. While they are still evaluating the offer, Jumbo's share price jumps from DKK 60 to DKK 70 per share. However, Asteric's CEO is not so happy about this jump and still believes that the true stand-alone price of Jumbo Corporation may be DKK 60 per share, and not DKK 70 per share. If you believe the CEO, analyze if this merger would be positive NPV for Asteric Corporation?
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