Question

Fast Inc. is planning to acquire Loose ltd. After the acquisition, there will be synergies worth...

Fast Inc. is planning to acquire Loose ltd. After the acquisition, there will be synergies worth 20

million NOK. Fast Inc. is all equity financed, its assets' value is 100 million NOK and there are 1000

shares outstanding. Loose ltd. has assets worth 80 million NOK, a debt-to-equity ratio of 30% and

1000 shares outstanding. The acquisition will be paid with new shares issued by Fast Inc.

How many shares of the new company will Loose stockholders receive for each stock they hold in

Loose ltd. if the profit from synergies will be equally split between stockholders of the two

companies? Assume perfect capital markets and no taxation.

A. 0.65

B. 0.75

C. 1.00

D. 1.54

E. I choose not to answer

The answer is A

can anyone help me with the calculation? thank you.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Value of loose Ltd. = 80 millions

Debt to equity ratio = 30%

it means debt = 0.30, Equity is 1.00

Total capital is 1.30

So, value of equity = 80 millions * 1.0/1.3 61538461.54 NOK

Add : Half of synergic benefits (20/2) 10000000 NOK

--------------------

Total value = 71538461.54

No of shares = 1000

--------------------

Value per share = 71538461.54/1000 71538.46154 NOK

--------------------

Value of Fast Inc. 100000000 NOK

whole value is equity

Add: Half of synergic benefits(20/2) 10000000 NOK

--------------------

Total value = 110000000

No of shares = 1000

--------------------

Value per share = 110000000/1000 110000 NOK

--------------------

Exchange ratio formula = Value per share of aTarget company / Value per share of Acquiring company

71538.46154 /110000

0.6503496503

So, loose ltd. stockholders will receive 0.65 share of Fast inc. for 1 share held by them.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
This is the complete question : Q. New Line technologies Ltd. is planning to acquire Frontline...
This is the complete question : Q. New Line technologies Ltd. is planning to acquire Frontline Technologies Ltd. as part of its expansion strategy. To arrive at a reasonable estimate of valuation of the target firm, it is planning to use the comparable company’s financial data.   The Following financial information is presented for a competitor, Block Chain Technologies, Inc. Financial Year 2019 All values are in INR millions except per share data Sales 235 EBIT 65 Net Income 51 Basic...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial information for the two firms is shown below. Hill Date Price Per share, $ 4.50 1.90 Number of shares 28,000,000 10,500,000 Dividend payout ratio 0.65 0.20 Both firms are financed entirely by equity. The acquisition will result in expected cost savings for the merged (post-acquisition) firm with a total present value of $38 million. (a) Assume for this part of the question that Hill’s...
Question 1 Company A plans to acquire Company B. The acquisition would result in incremental cash...
Question 1 Company A plans to acquire Company B. The acquisition would result in incremental cash flows for Company A of R15 million in each of the first five years. Company A expects to divest from Company B at the end of the fifth year for R100 million. The beta for Company A is 1.1, which is expected to remain unchanged after the acquisition. The risk-free rate, Rf, is 7 percent, and the expected market rate of return, Rm, is...
Juicers Inc. is thinking of acquiring Fast Fruit Company. Juicers expects Fast Fruit's NOPAT to be...
Juicers Inc. is thinking of acquiring Fast Fruit Company. Juicers expects Fast Fruit's NOPAT to be $9 million the first year, with no net new investment in operating capital and no interest expense. For the second year, Fast Fruit is expected to have NOPAT of $25 million and interest expense of $5 million. Also, in the second year only, Fast Fruit will need $10 million of net new investment in operating capital. Fast Fruit's marginal tax rate is 40%. After...
Octopus Inc. acquired Guppy in 1999. Guppy has a market value of $70 million. Octopus paid...
Octopus Inc. acquired Guppy in 1999. Guppy has a market value of $70 million. Octopus paid $95 million in Octopus common stock to acquire all outstanding shares. Balance sheet information for Guppy includes: Book Value Fair Value Accounts Receivable $15.0 million $14.5 million Inventory 16.5 21.5 Fixed Assets 24.1 29.3 Patents 0 26 Liabilities -6.1 -6.1 Total    $49.5 million $ 85.2 million This acquisition was recorded as a pooling of interest; the books of Octopus will include: a. Debit...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
Discuss how the respective organizations’ relations with stakeholders could have potentially been affected by the events...
Discuss how the respective organizations’ relations with stakeholders could have potentially been affected by the events that took place at Enron and how the situation could have been dealt with differently to prevent further damage? THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT