Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 28, Problem 14P

Let’s reconsider part (b) of Problem 99. The actual premium that your company will pay for TargetCo will not be 20%, because on the announcement the target price will go up and your price will go down to reflect the fact that you are willing to pay a premium for TargetCo. Assume that the takeover will occur with certainty and all market participants know this on the announcement of the takeover.

  1. a. What is the price per share of the combined corporation immediately after the merger is completed?
  2. b. What is the price of your company immediately after the announcement?
  3. c. What is the price of TargetCo immediately after the announcement?
  4. d. What is the actual premium your company will pay?
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6. IPO price stabilization Which of the following strategies can underwriters use to prevent institutional investors from flipping? Check all that apply. They can require an overallotment clause in the underwriting agreement of the IPO. They can agree to make more shares of future IPOS available to investors that hold on to the initial shares for a relatively long period of time. They can require a lockup clause in the underwriting agreement of the IPO. They can agree to sell the shares in the IPO at a lower price than suggested by their bookbuilding analysis.
Do solve it as soon as possible    Identify which statement is not correct. In a takeover bid to acquire a part or all shares in another company: Select one: a. Friendly merger reduces the chance of overpaying for target’s shares. b. Successful acquirer is likely to pay more for target’s shares in scenarios that include multiple rival bidders. c. Target company management would not accept an offer where the consideration for target’s shares exceeds the NPV of the merger. d. Hostile takeover may result in overpaying for target’s shares.
The following graph represents the Cumulative Average Abnormal Return (CAAR) for the stocks of companies targeted for take-over.   Which of the following statements is true?   a. In a weak form efficient market, t* is the actual takeover event (i.e. the time when the legal takeover transaction is completed)   b. In a semi-strong form efficient market, t* is the takeover announcement event   c. In a strong form efficient market, t* is the acquiring company takeover decision event (i.e. the time when an acquiring company decides to launch a takeover)   d. (a) & (b)   e. (b) & (c)
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