Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B has estimated that the value of synergistic benefits from acquiring Firm T is $3,000. Firm B Firm T Shares Outstanding 1,500 900 Price per share $34 $24 a. If Firm T is willing to be acquired for $27 per share in cash, what is the NPV of the merger? b. What will the price per share of the merged firm be assuming the condition in (a)? c. If B instead offers 0.6 shares of B per share of T, what will the price per share of the merged firm be? d. What is the NPV of the merger assuming the conditions in (c)?
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B has estimated that the value of synergistic benefits from acquiring Firm T is $3,000. Firm B Firm T Shares Outstanding 1,500 900 Price per share $34 $24 a. If Firm T is willing to be acquired for $27 per share in cash, what is the NPV of the merger? b. What will the price per share of the merged firm be assuming the condition in (a)? c. If B instead offers 0.6 shares of B per share of T, what will the price per share of the merged firm be? d. What is the NPV of the merger assuming the conditions in (c)?
Related questions
After analyzing the particulars of firms A and B and their proposed merger, comment on the desirability of the merger:
| Firm A | Firm B | |
| $16.00 | Price per share | $10.00 |
| 8 | P/E ratio | 5 |
| 1,000 | Shares outstanding | 1,000 |
Firm A will purchase firm B by offering 625 shares of firm A. the merged firms are expected to be worth $26,000. Be sure to mention EPS of the merged entity, and so on.
| Consider the following premerger information about Firm X and Firm Y: |
| Firm X | Firm Y | |||||
| Total earnings | $ | 89,000 | $ | 19,000 | ||
| Shares outstanding | 46,000 | 11,000 | ||||
| Pre-share values: | ||||||
| Market | $ | 46 | $ | 17 | ||
| Book | $ | 15 | $ | 6 | ||
| Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $4 per share, and that neither firm has any debt before or after the merger. |
| a. | Assuming the pooling of interests method is used, what is the equity of the combined firm? |
| Equity value | $ |
| b. | List the assets of the combined firm assuming the purchase accounting method is used. |
| Assets from X | $ |
| Assets from Y | |
| Goodwill | |
| Total Assets XY | $ |
| Consider the following premerger information about Firm X and Firm Y: |
| Firm X | Firm Y | |||||
| Total earnings | $ | 95,000 | $ | 22,000 | ||
| Shares outstanding | 52,000 | 17,000 | ||||
| Pre-share values: | ||||||
| Market | $ | 52 | $ | 21 | ||
| Book | $ | 15 | $ | 10 | ||
| Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $6 per share, and that neither firm has any debt before or after the merger. |
| a. | Assuming the pooling of interests method is used, what is the equity of the combined firm? |
| Equity value | $ |
| b. | List the assets of the combined firm assuming the purchase accounting method is used. |
| Assets from X | $ |
| Assets from Y | |
| Goodwill | |
| Total Assets XY | $ |
