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Case summary: Company HH is a regional hardware chain which is considering acquiring LL. The boss of the company asked to place a value on target.
Interest is included in existing debt of $55 million @9% in LL and new debt will be issued after some time to help the expansion with respect to finance with in the new L division. If it is acquired, then the Company LL will face 40% of tax.
Beta will be 1.3 for LL’s stock with risk free rate 7% and market risk premium is 4%.
The acquisition will not change the LL company’s structure it will remain at 20% debt.
Person Z estimates that after 2020 the company will grow at 6%.
The management of the company HH is asking various questions about mergers and also asking to perform merger analysis based on the given details of Company LL.
To determine: The method which is used for accounting mergers.
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Chapter 22 Solutions
EBK FINANCIAL MANAGEMENT: THEORY & PRAC
- Differentiate between public and private syndications?arrow_forwardshares on January 1. Promise paid $300,000 and issued $200,000 in long-term liabilities and paid Promise also agreed to pay $80,000 to the former owners of SaidSo contingent on meeting certain revenue goals during the following year. Promise estimated the present value of its probability adjusted expected payment for the contingency or contingent obligation at $30,000 in legal fees. $23,000 Precombination book values for SaidSo, Inc. are as follows: 80,000 90,000 175,000 Current assets 24 Equipment Buildings Goodwill 33,000 $378,000 Total $ (45,000) (180,000) (115,000) (138,000) 100,000 $(378,000) Current liabilities 2$ Common stock Retained earnings Revenues Expenses Total Promise's appraisal of SaidSo found two balance sheet accounts that differed from fair value. Equipment was undervalued by $15,000 and Buildings by $5,000. Promise noted that SaidSo has unrecorded client contracts worth $60,000 and résearch and development activity in process with an appraised fair value of $90,000arrow_forwardWhat are the reporting issues in a sale with a repurchase agreement?arrow_forward
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