a)
To compute: The NPV (
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
a)
Answer to Problem 8QP
The NPV of the merger is $5,200.
Explanation of Solution
Given information: Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the NPV:
Calculate the NPV if the price per share for acquisition is $21:
Hence, the NPV is $5,200.
b)
To calculate: The price per share
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
b)
Answer to Problem 8QP
The price per share is $47.96.
Explanation of Solution
Given information: Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the share price:
Calculate the share price:
Hence, the share price $47.96.
c)
To calculate: The merger premium.
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
c)
Answer to Problem 8QP
The merger premium is $4,200.
Explanation of Solution
Given information: Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the merger premium:
Calculate the merger premium:
Hence, the merger premium is $4,200
d)
To calculate: The price per share if the merger takes place through the exchange of stock and if the bidding firm offers one share for each of the two target firm’s shares.
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
d)
Answer to Problem 8QP
The price for one share in the merged firm is $47.28.
Explanation of Solution
Given information: Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the new shares:
Calculate the new shares:
Hence, the created new shares is $700.
Formula to calculate the value of the merged firm:
Calculate the value of the merged firm:
Hence, the value of the merged firm is $288,400.
Formula to calculate the price for one share for a merged firm:
Calculate the price for one share for a merged firm:
Hence, the price for one share is $47.28.
e)
To calculate: The NPV of the merger if the merger takes place through the exchange of stocks and if the bidding firm offers one share for each of the two target firms’ shares
Introduction:
A merger is the total absorption of one company by another, where the firm that is acquiring retains its uniqueness and it terminates the other to exist as an individual entity.
e)
Answer to Problem 8QP
The NPV of the merger is $1,504.92.
Explanation of Solution
Given information:
Pre-merger details about Firm B, the bidding firm and Firm T, the targeted firm provides the following information:
- The outstanding shares of Firm B and Firm T are $5,400 and $1,400 respectively.
- The prices for one share of Firm B and Firm T are $47 and $18 respectively.
The synergistic value benefits of Firm T from acquiring Firm B is $9,400.
Formula to calculate the NPV:
Calculate the NPV:
Hence, the NPV is $1,504.92.
Want to see more full solutions like this?
Chapter 26 Solutions
Fundamentals of Corporate Finance
- Don't used hand raitingarrow_forwardDon't used Ai solutionarrow_forwardAssume an investor deposits $116,000 in a professionally managed account. One year later, the account has grown in value to $136,000 and the investor withdraws $43,000. At the end of the second year, the account value is $107,000. No other additions or withdrawals were made. During the same two years, the risk-free rate remained constant at 3.94 percent and a relevant benchmark earned 9.58 percent the first year and 6.00 percent the second. Calculate geometric average of holding period returns over two years. (You need to calculate IRR of cash flows over two years.) Round the answer to two decimals in percentage form.arrow_forward
- Please help with the problem 5-49.arrow_forwardPlease help with these questionsarrow_forwardIn 1895, the first U.S. Putting Green Championship was held. The winner's prize money was $170. In 2022, the winner's check was $3,950,000. a. What was the percentage increase per year in the winner's check over this period? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. If the winner's prize increases at the same rate, what will it be in 2053? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Increase per year b. Winners prize in 2053 %arrow_forward
- Derek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 73.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 73.0 when he fully retires, he will begin to make annual withdrawals of $183,008.00 from his retirement account until he turns 94.00. After this final withdrawal, he wants $1.52 million remaining in his account. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 6.00% interest rate. Round to 2 decimal places.arrow_forwardDerek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 71.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 71.0 when he fully retires, he will begin to make annual withdrawals of $177,333.00 from his retirement account until he turns 94.00. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 9.00% interest rate. Submit Answer format: Currency: Round to: 2 decimal places.arrow_forwardDerek plans to retire on his 65th birthday. However, he plans to work part-time until he turns 72.00. During these years of part-time work, he will neither make deposits to nor take withdrawals from his retirement account. Exactly one year after the day he turns 72.0 when he fully retires, he will wants to have $3,104,476.00 in his retirement account. He he will make contributions to his retirement account from his 26th birthday to his 65th birthday. To reach his goal, what must the contributions be? Assume a 8.00% interest rate. Submit Answer format: Currency: Round to: 2 decimal places.arrow_forward
- Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning