Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN: 9781285867977
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 21, Problem 5Q
Summary Introduction
To discuss: The correct position on the argument made by the group of consultants.
Introduction:
A process or an agreement where two or more firms combines together to form one new company is termed as Mergers.
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Students have asked these similar questions
General Meters is considering two mergers. The first is with Firm A in its own volatile
industry, the auto speedometer industry, while the second is a merger with Firm B in an
industry that moves in the opposite direction (and will tend to level out performance due to
negative correlation).
\table [[General Meters Merger with Firm A, General Meters Merger with Firm B,], [Possible
Earnings ($ in, Possible Earnings ($ in,,,], [millions), Probability,0.20, $20, Probability], [$
20, 0.40, 35, 0.15,], [35, 0.40, 50, 0.50,], [50,, 0.35,,]]
a. Compute the mean, standard deviation, and coefficient of variation for both investments
Note: Do not round intermediate calculations. Enter your answers in millions. Round
"Coefficient of variation" to 3 decimal places and "Standard deviation" to 2 decimal places.
\table[[, Merger A, Merger B], [Mean,,], [Standard deviation,,], [Coefficient of variation,,]]
b. Assuming investors are risk-averse, which alternative can be expected to bring the
higher…
Which of the following statements is most CORRECT?
Oa. Managers who purchase other firms often assert that the new combined firm will enjoy benefits from diversification,
including more stable earnings. However, since shareholders are free to diversify their own holdings, and at what's probably
a lower cost, diversification benefits is generally not a valid motive for a publicly held firm.
Ob. The smaller the synergistic benefits of a particular merger, the greater the scope for striking a bargain in negotiations,
and the higher the probability that the merger will be completed.
Oc. Since mergers are frequently financed by debt rather than equity, a lower cost of debt or a greater debt capacity are rarely
relevant considerations when considering a merger.
Od. Operating economies are never a motive for mergers.
Oe. Tax considerations often play a part in mergers. If one firm has excess cash, purchasing another firm exposes the
purchasing firm to additional taxes. Thus, firms with excess…
Firms facing hostile takeovers often take actions to forestall the acquisition.
For instance, a firm could borrow on terms that required immediate repayment if the firm is acquired or it could sell off undervalued assets to make itself a less desirable target. Such tactics are referred to as?
Paul works for an investment bank in the corporate finance division. Along with the typical functions in his job role—such as finding a potential target company for a client which would add synergistic value to the client, finding a potential acquirer for a client, developing defensive tactics, establishing a fair value and financing operations—Paul also works with his team in conducting arbitrage operations.
Based on your understanding of arbitrage operations complete the following sentence:
In recent trade, Paul was assigned to buy 10% of a client’s shares from the open market at $45.50 per share and sell the shares at a price of $46.20 to a private investor, pocketing a return for his firm.…
Chapter 21 Solutions
Fundamentals of Financial Management (MindTap Course List)
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