Bundle: Financial Management: Theory And Practice, Loose-leaf Version, 15th + Mindtapv2.0 Finance, 1 Term (6 Months) Printed Access Card
15th Edition
ISBN: 9780357261736
Author: Eugene F. Brigham, Michael C. Ehrhardt
Publisher: Cengage Learning
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Chapter 22, Problem 1MC
Summary Introduction
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.
Characters in the case:
To justify: Whether the given reasons are economically justifiable and the one which fits the situation.
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Students have asked these similar questions
which of the following are potential areas for cost reduction with a merger or acquisition? (Check all that apply)
A) economies of sale
B) economies of vertical integration
C) complementary resources
D) reduction in EPS
E) higher transaction costs
Find a recent merger transaction that failed due to regulatory concerns over market share concentration and reduction of consumer alternatives. Do you support the regulatory concerns? Explain briefly the transaction and your reasoning.
“Merger may be profitable but are they good for the economy?” Explain your answer towards this statement.
Chapter 22 Solutions
Bundle: Financial Management: Theory And Practice, Loose-leaf Version, 15th + Mindtapv2.0 Finance, 1 Term (6 Months) Printed Access Card
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