Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Question
Chapter 28, Problem 5P
Summary Introduction
To explain the differences in the structuring of the deal and post merger integration, when an acquisition is motivated by the skills and expertise, the target company has than when acquiring a company which has attractive physical assets.
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Because the cost of buying higher market share through acquisition may far exceed its revenue value, what factors should be considered by the company first.
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A large multinational corporation is considering acquiring a
smaller competitor to expand its market share. The potential
acquisition could provide access to new customers,
technology, and operational synergies. However, integration
risks, cultural differences, and regulatory challenges pose
threats to the deal's success. The acquiring company must
carefully analyze the target's financial health, customer
base, and operational fit. Due diligence will reveal if the
acquisition is worth the premium price. Moreover, the
method of financing the acquisition-through cash, stock, or
debt-will affect the financial impact. Should the company
proceed with the acquisition, and if so, how can it mitigate
potential risks? The decision hinges on strategic alignment
and financial return.
Chapter 28 Solutions
Corporate Finance
Ch. 28.1 - Prob. 1CCCh. 28.1 - Prob. 2CCCh. 28.2 - On average, what happens to the target share price...Ch. 28.2 - Prob. 2CCCh. 28.3 - What are the reasons most often cited for a...Ch. 28.3 - Prob. 2CCCh. 28.4 - Prob. 1CCCh. 28.4 - What do risk arbitrageurs do?Ch. 28.5 - Prob. 1CCCh. 28.5 - Prob. 2CC
Ch. 28.6 - Prob. 1CCCh. 28.6 - Prob. 2CCCh. 28 - What are the two primary mechanisms under which...Ch. 28 - Prob. 2PCh. 28 - What are some reasons why a horizontal merger...Ch. 28 - Prob. 4PCh. 28 - Prob. 5PCh. 28 - Prob. 6PCh. 28 - How do the carryforward and carryback provisions...Ch. 28 - Diversification is good for shareholders. So why...Ch. 28 - Your company has earnings per share of 4. It has 1...Ch. 28 - If companies in the same industry as TargetCo...Ch. 28 - Prob. 11PCh. 28 - Prob. 12PCh. 28 - Prob. 13PCh. 28 - Lets reconsider part (b) of Problem 99. The actual...Ch. 28 - ABC has 1 million shares outstanding, each of...Ch. 28 - Prob. 16PCh. 28 - How does a toehold help overcome the free rider...Ch. 28 - Prob. 18P
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Similar questions
- In the process of determining fair value, the exit price refers to: Multiple Choice the amount the firm would receive if it sold a given asset. the amount the firm would pay if it bought an asset of the same type and condition as the one being valued. the sum of the future cash flows expected to be generated by continuing to use the asset. the expected sale price of the stock in a corporate buy-out.arrow_forwardSuppose you are the CEO of a large firm in a service business and you think that by acquiring a certain competing firm, you can generate growth and profits at a greater rate for the combined firm. Youhave asked some financial analysts to study the proposed acquisition/merger. Do you think valuechain analysis would be useful to them? Why or why not?arrow_forwardExplain why firms undertake acquisitions.arrow_forward
- What is a capital investment and why do companies need to evaluate whether to make the investment or not?arrow_forwardWhat is a leveraged buyout? It is a type of joint venture. It is an acquisition in which a large acquirer has leverage through bargaining power over a small target. It is an acquisition which is funded from a relatively large amount of debt. It is an acquisition which is funded from a relatively low amount of debt.arrow_forwardDiscuss the underlying theories and empirical evidence on the value creation from horizontal mergers. How do other firm- and deal- characteristics interact with the valuation effects of such mergers?arrow_forward
- In terms of mergers and acquisitions, what is the aim of valuation?arrow_forwardA common mistake that can occur in valuing a target would be: Group of answer choices Applying the acquirer’s growth rate in revenues to the target’s sale levels. Applying the acquirer’s cost of capital in the target’s evaluation equation. Applying the acquirer’s price-earnings ratio to the target’s earnings. All of these choices.arrow_forwardDoes the successful investment decision increase a company's market value?arrow_forward
- Securitization has its upside (primarily liquidity and diversification), but it has its downside as well. Which of the following are potential downsides to securitization? Choose the best answer. Select one: Tax-avoidance and regulatory-avoidance Non-transparency Agency costs All of the abovearrow_forwardQuestions How would you assess the evolution of the capital structure of LGI? Reflecting on your work in Project 1, would you consider the risk exposure under control? If not, what are your recommendations? [insert your answer here] What kind of information do you find valuable in CAPM to guide you in assessing the risk of LGI compared to other firms and the market in general? [insert your answer here] 3. Identify and differentiate the stakeholders of LGI and explain how each one should perceive and weigh the risk and/or return of the firm. [insert your answer here] Would you consider the investment made in Project 4 optimally financed considering the proportion of debt that is bearable by LGI? How did the current WACC in Project 5 depart from the state of the firm in Project 1? [insert your answer here] 1.If you had to advise a potential investor interested in having a minority stake in LGI, what kind of information would you provide to help the…arrow_forward“Merger may be profitable but are they good for the economy?” Explain your answer towards this statement.arrow_forward
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