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OLDPRACTICE Final ExamADM 335 MNCorporate FinanceProfessorsKaouthar LajiliDevinder GhandiTime Three hoursNAME STUDENT NUMBER SIGNATURE GENERAL INSTRUCTIONS Hand in everything at the end of the exam period Use the space provided in the exam for your answers and relevant work do not rewrite the question in the solution space identify the solutions clearlyAlways keep three decimals for all calculated resultsNo books or notes permittedThe use of calculators is permittedPART IProblems50PART IIMCQ50TOTAL100 Statement of Academic IntegrityThe School of Management does not condone academic fraud an act by a student that may result in a false academic evaluation of that student or of another student Without limiting the generality of this definition academic fraud occurs when a student commits any of the following offences plagiarism or cheating of any kinduse of books notes mathematical tables dictionaries or other study aid unless an explicit written note to the contrary appears on the exam to have in hisher possession cameras radios radios with head sets tape recorders pagers cell phones or any other communication device which has not been previously authorized in writing Statement to be signed by the studentI have read the text on academic integrity and I pledge not to have committed or attempted to commit academic fraud in this examinationSignedNote an examination copy or booklet without that signed statement will not be graded and will receive a final exam grade of zero 1PART I 45 points totalInstructionsDo problem 1 mandatory and pick one problem the following five and solve only that problem total 2 problems one mandatory and one a choice among fivePROBLEM 1 mandatory 25 pointsMERGERSACQUISITIONSAs the financial manager of Global Toys Inc you are examining the possible acquisition of a smaller toy company called Games for AllYou have the following basic financial information about both companiesGlobal Toys Games for AllPriceearnings ratio1512Number of shares1000000250000Earnings1000000750000You also know that investors and analysts expect the earnings and dividends currently 180 per share of Games for All to grow at a constant rate of 5 each yearHowever your research indicates that the acquisition should provide Games for All with some economies of scale which would raise this growth rate to 7 per yearAWhat is the value of Games for All to Global Toys8 pointsBIf Global Toys offers 40 in cash for each outstanding share of Games for All what would the NPV of the acquisition be4 pointsCIf instead Global Toys offers 600000 of its shares in exchange for the outstanding stock of Games for All what would the NPV of this acquisition be 8 points DInterpret your results in B and C above and make your recommendation with regard to how the acquisition should be made cash or stock5 pointsAnswer2
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