Question

1. Firm A has 100 shares, worth $10 each. Firm B has 80 shares with $15...

1. Firm A has 100 shares, worth $10 each. Firm B has 80 shares with $15 each. If there is synergy of $200 for a merger and firm A intends to keep half of the synergy to itself, what is the debt ratio of the combined company if it is an all-cash offer? Assume neither has cash or debt pre-merger. 2. Firm A has 100 shares, worth $11 each. Firm B has 80 shares with $15 each. If there is no synergy, how much cash per share firm A should offer to firm B to ensure that the new company is equally owned by both firms?

Homework Answers

Answer #1

CALCULATION OF PRICE OFFERED BY FIRM A TO FIRM B IN CASE OF SYNERGY

VALUE OF FIRM B =80X15=1200

SYNERGY GIVEN BY A (200/2)=100

TOTAL CASH OFFERED BY FIRM A=1300

SO DEBT INCREASE BY 1300( BECAUSE no cash available).

EQUITY HELD BY A=100X10=1000

VALUE OF SYNERGY HELD BY A =100

TOTAL EQUITY =1100

DEBT RATIO= DEBT/DEBT+EQUITY

= 1300/1300+1100

= 0.54166

SECOND PART

TOTAL VALUE OF BOTH FIRM

VALUE OF FIRM A=100X11=1100

VALUE OF FIRM B=80X15=1200

TOTAL VALUE =2300

IT SHOULD BE DIVIDED EQUALLY

SO VALUE GIVEN TO FIRM B SHOULD BE=2300/2=1150

CASH PER SHARE =VALUE/NO. OF SHARE

=1150/80

= =14.75

SO 14.75 cash per share firm A should offer to firm B

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Firm A (acquirer) has 100 shares, worth $10 each. Firm B (target) has 100 shares with...
Firm A (acquirer) has 100 shares, worth $10 each. Firm B (target) has 100 shares with $12 each. If there is a synergy of $200 for a merger of the two and firm A intends to keep half of it, what is the number of shares of firm A to be exchanged for each of firm B’s shares?
Firm A (acquirer) has 100 shares, worth $10 each. Firm B (target) has 100 shares with...
Firm A (acquirer) has 100 shares, worth $10 each. Firm B (target) has 100 shares with $12 each. If there is a synergy of $200 for a merger of the two and firm A intends to keep half of it, what is the number of shares of firm A to be exchanged for each of firm B’s shares?
43) Firm A is planning on merging with Firm B. Firm A currently has 2,300 shares...
43) Firm A is planning on merging with Firm B. Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share. Firm B has 750 shares outstanding at a price of $15 a share. The merger will create $200 of synergy. How many of its shares should Firm A offer in exchange for all of Firm B's share if it wants its acquisition cost to be $12,000?     43) ______ A) 607B) 593C) 598D) 584E) 600...
Firm K is planning to buy firm B. The two firms’ separately are worth $30m and...
Firm K is planning to buy firm B. The two firms’ separately are worth $30m and $10m respectively. Merging the two firms will lead to reducing in management and marketing firm of up to $0.7m per year in perpetuity. Firm K can acquire firm B with cash worth 15m or offer B a 50% holding in K. assume a post merge cost of capital is 10% What is the gain from the merger? What is the cost of the cask...
Consider the following information for two all-equity firms, Firm A Firm B Total earnings $1,000 $400...
Consider the following information for two all-equity firms, Firm A Firm B Total earnings $1,000 $400 Shares outstanding 100 80 Price per share $80 $30 1.a) What is the equivalent cash cost of the merger if the merged firm is worth $11,000? 1.b) What is Firm A’s new P/E ratio after merger?
Consider the following pre-merger information about a bidding firm (Firm B) and a target firm (Firm...
Consider the following pre-merger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T Shares Outstanding 8,700 3,600 Price per Share $47 $19 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $16,700. If Firm T is willing to be acquired for $21 per share in cash, what is the NPV of the merger? $3,600 $2,400 8,700 $9,500
Bidding firm (Firm B) has 5679 shares outstanding that are currently selling at $47 per share....
Bidding firm (Firm B) has 5679 shares outstanding that are currently selling at $47 per share. Target firm (Firm T) has 1691 shares outstanding that are currently selling at $16 per share. Assume that both firms have no debt outstanding. Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $8327. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers three of its shares for every five...
Consider the following pre-merger information about a bidding firm (Firm B) and a target firm (Firm...
Consider the following pre-merger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T Shares Outstanding 8,700 3,600 Price per Share $47 $19 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $16,700. Suppose Firm B agrees to a merger by an exchange of stock. If B offers one of its shares for every 2 of T's shares....
A Corporation has been in merger talks with B Company. After the merger, B will become...
A Corporation has been in merger talks with B Company. After the merger, B will become a division of A. Jack, the financial officer at A, has been instrumental in the negotiations. Both companies believe a merger will result in significant synergies due to economies of scale in manufacturing and marketing, as well as savings in general and administrative expenses. Stocks in A currently sell for $94 per share, and the company has 11 million shares of stock outstanding. The...
Firm A has a value of $500 million and Firm B has a value of $300...
Firm A has a value of $500 million and Firm B has a value of $300 million. Firm A has 1000 shares outstanding, and Firm B has 800 shares outstanding. Suppose that the merger would increase cash flows of the combined firm by $5 million in perpetuity. Assuming the cost of capital for the new firm is 5%. Assume that Firm A purchases Firm B for $330 million. How much do Firm A's shareholders gain from this merger? A. $30...