Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134408897
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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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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Discuss the validity of risk diversification as a motivation for companies engaging in merger and acquisition activity?
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.
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.
Chapter 28 Solutions
Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
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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- Suppose 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_forwardWhat has been the rationale for LVMH acquisitions?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_forwardWhy might a company want to invest in a company rather than buy it outright? Wouldn't they have more say if they bought the company?arrow_forwardYou are an investor trying to determine the total value of a firm's assets (recall that one way to summarize the value of a company is the total value of its assets). Which of the following best describes the true "market value of the firm's assets that you would be looking for as a potential investor seeking to find the value of the firm? A. The assets' total market value is the cost associated with acquiring those assets. B. The assets' total market value can be found by adding up all of the individual asset values on the firm's balance sheet. C. The market value of the firm's assets is the total value the firm could get if it sold all of its tangible assets (machines, buildings, etc.) to the highest bidder. D. The assets' total market value is the present value of all of the cash flows that they can generate within the firm. Both C and D are correct.arrow_forward
- Explain research and development purchase in business acquisitions.arrow_forwardIt is quite often we observe some firms takeover target firms from a different industry. If diversifying harms firm value and it is more efficient to make diversification at the investor (shareholder) level than at the firm level, why do you think the managements still choose to make diversified acquisitions?arrow_forwardWhich of the following is not a determinant of investment? a) The efficiency of capital equipment b) The level of consumer demand c) Interest rates d) The willingness of investors to buy new share issuesarrow_forward
- Which of the following is an economic motivation for an acquisition? Using a cash surplus. b. Diversification. c. Economies of scale. d. All of these choices.arrow_forward“Merger may be profitable but are they good for the economy?” Explain your answer towards this statement.arrow_forwardDo mergers create value? If so, who profits from this value?arrow_forward
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