Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Question

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Answer 1

Question

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

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Students have asked these similar questions

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Suppose you own stock in a company. The current price per share is P25.00. Another company has just announced that it wants to buy your company and will pay P35.00 per share to acquire all the outstanding stock. Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’ best interests? Why or why not?

Suppose that you believe the fundamental value of Wal-Grey stock is about to rise from $50 to $100 because of its new management team. You have $20,000 that you can risk in the market, and you can think of four possible ways to profit: a)use your $20,000 to buy shares of Wal-Grey b)borrow (at a 6% interest rate) an additional $20,000 on margin to buy a total of $40,000 worth of Wal-Grey stock c) enter into a futures contract to buy 400 shares of Wal-Grey in one year for $21,200 (you can invest safetly for a year at a 6% interest rate) d)buy a call option (for every $1000 you spend on call options, you have the right to buy 100 shares of Wal-Grey at the current price of $50 per share.) Calculate how much you earn or lose by each method if: (i) Wal-Grey stock rises to $100 per share in one year.

Answer 2

Question

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

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Answer 3

Question

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

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Answer 4

Question

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

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Answer 5

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 6

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 7

Chapter 28, Problem 16P

a.

Summary Introduction

Determine how many new shares will be issued by BAD Company and at what price, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding and an acquiring company believes that the company’s value can be increased, if the management is replaced. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 8

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 9

b.

Summary Introduction

Determine what will happen to the percentage of ownership of BAD Company by the acquirer company, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 10

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 11

Summary Introduction

Determine what will happen to the price of shares of BAD Company, despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 12

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 13

d.

Summary Introduction

Determine whether the acquirer company loses or gains from triggering the poison pill. In case there is a loss, where does the loss go and in case there is a gain, who gains and how. Given that despite the BAD Company’s management resisting the buyout attempt, the acquirer company’s purchase crosses the 20% threshold of ownership, given that BAD Company’s stock price is $20 and the firm has 2 million shares outstanding. The BAD Company has a poison pill with a 20% trigger and if the poison pill is triggered, all BAD shareholders except the acquiring company will be able to buy one new share in BAD for each share they own at a 50% discount. Assume that the price of shares remains at $20 per share when the acquirer company is acquiring shares. Despite the BAD Company’s management resisting the buyout attempt, the acquirer company crosses the 20% threshold of ownership.

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 28.1 - Prob. 1CC Ch. 28.1 - Prob. 2CC Ch. 28.2 - On average, what happens to the target share price...Ch. 28.2 - Prob. 2CC Ch. 28.3 - What are the reasons most often cited for a...Ch. 28.3 - Prob. 2CC Ch. 28.4 - Prob. 1CC Ch. 28.4 - What do risk arbitrageurs do?Ch. 28.5 - Prob. 1CC Ch. 28.5 - Prob. 2CC

Solution Summary: The author explains that BAD Company's stock price is 20 and the firm has 2 million shares outstanding, and an acquiring company believes that its value can be increased if the management is replaced.

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Chapter 28 Solutions