Question

Consider the following premerger information about Firm X and Firm Y: Firm X Firm Y   Total...

Consider the following premerger information about Firm X and Firm Y:

Firm X Firm Y
  Total earnings $ 93,000 $ 21,000
  Shares outstanding 50,000 15,000
  Per-share values:
     Market $ 50 $ 21
     Book $ 17 $ 8

Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $8 per share, and that neither firm has any debt before or after the merger.

List the assets of the combined firm assuming the purchase accounting method is used.

  
  Assets from X $  
  Assets from Y   
  Goodwill   
  Total Assets XY $  

Homework Answers

Answer #1


Assets from X = Shares outstanding x Book value of the shares

Assets from X = 50000 x $17

Assets from X = $850,000.00

.

Assets from Y = Shares outstanding x Market value of the shares

Assets from Y = 15000 x $21

Assets from Y = $315,000.00

.

Goodwill = Shares outstanding of Y x Merger premium

Goodwill = 15000 x $8

Goodwill = $120,000.00

.

Total assets from XY = Assets from X + Assets from Y + Goodwill

Total assets from XY = $850,000.00 + $315,000.00 + $120,000.00

Total assets from XY = $1,285,000.00

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