Company A considers acquiring company B. Shares of the company A trade at $30 and there are 5,000 of A shares outstanding. Company B has 200 shares outstanding worth $100 each. If A acquires B, then the resulting synergy will amount to $10,000. Suppose A offers to exchange every B's share for $130 in cash. What will be the total benefit for the existing shareholders of B?
Q: In mid-2012, Ralston Purina had AA-rated, 10-year bonds outstanding with a yield to maturity of…
A: Expected return refers to the return that is being earned by the bondholders over the amount of…
Q: Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital…
A: MIRR stands for modified internal rate of return. MIRR is used to evaluate if a project is…
Q: You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of…
A: Year 1Year 2Year 3Year 4EBITDA$78$98$113$118Depreciation$38$48$53$58Pretax profit$40$50$60$60Tax…
Q: A project has the following cash flows: 02 3 1 ⫺$500 $202 ⫺$X $196 45 $350 $451 This project…
A: The objective of the question is to find the cash outflow in Year 2 of a project given the cash…
Q: Hartman Motors has $20 million in assets, which were financed with $5 million of debt and $15…
A: Unlevered beta is the beta for a company with zero debt I its capital structure. In that case, the…
Q: Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the…
A: A coupon bond is a type of debt security issued by governments, municipalities, or corporations. It…
Q: firm with a capital strucutre of all equity is called
A: Capital structure of a firm might comprise of debt, equity and preference stock.The optimum capital…
Q: Booing Corporation has just issued a callable (at par) three-year, 5.5% coupon bond with semi-annual…
A: The YTM refers to the return that the bond provides if the bond is held till the maturity date. The…
Q: Skippy wants to have $16,000.00 in 7 years. His bank is offering an account that earns 2% compounded…
A: Compound = Monthly = 12Future Value = fv = $16,000Time = t = 7 * 12 = 84Interest Rate = r = 2 / 12 %
Q: (Related to Checkpoint 9.2) (Yield to maturity) The market price is $750 for a 20-year bond ($1,000…
A: Yield to maturity is defined as the anticipated return on bonds when the bonds used to be held till…
Q: Which one of the following statements about dividend policies is FALSE? a. One advantage of…
A: According to client effect theory, businesses should adjust their dividend policies to appeal to a…
Q: 13. Mortgage payments Mortgages, loans taken to purchase a property, involve regular payments at…
A: Present value of annuity formula.PV = A * where,PV = present value of annuityA = periodic…
Q: The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds (1957 replicas…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: The owner of Oriole Toy Manufacturing Company has recently expanded his business in order to add an…
A: ToysShirtsAverage operating assets$905,000$214,000Minimum rate of return11%11%Minimum amount of…
Q: Market Debt-to- Value Ratio (wd) Market Equity-to- Value Ratio (ws) 1.0 6.0% 0.0 0.10 0.90 6.4 0.20…
A: Cost of capital:The cost of capital refers to the amount of money that a company must pay to finance…
Q: Term bonds are bonds: IF odmoos C A) that mature in installments. B) that mature all at once. C)…
A: Bonds are debt securities that represent a form of borrowing for both governments and corporations.…
Q: 0 Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over…
A: Expected dividend = $13.50Growth rate = 5.25%Required return = 13.25%Number of years = 10 years
Q: eBook H Problem Walk-Through Project L requires an initial outlay at t 0 of $45,000, its expected…
A: modified internal rate of return refers to the return which is calculated by considering the…
Q: Information for two alternative projects involving machinery investments follows: Project 1 $…
A: Average investment:Project 1=(133,000+0)/2=$66,500Project 2=(103,000+13,000)/2=$58,000
Q: The following bond list is from the business section of a newspaper on January 1, 2016. Notice that…
A: A bond is a debt market instrument that offers a stream of fixed income for a defined number of…
Q: What is the future value on June 30, Year 11, of 20 cash flows of $15,000 with the first cash…
A: Compound = Semiannually = 2time = 20 Payment = $15,000Semiannually Interest Rate = 10 / 2 = 5%
Q: Who is the issuer of the bonds? Citigroup The Hungarian government Hungary Bank What type of…
A: Treasury bonds are issued by the government, and they are considered to have the least default risk…
Q: Tartan Industries currently has total capital equal to $5 million, has zero debt, is in the 25%…
A: An event that alters the proportion of debt and equity in the overall capital is known as…
Q: Each of the four independent situations below describes a sales-type lease in which annual lease…
A: Lease payments:Lease payments are a type of payment made by a lessee to a lessor for the use of an…
Q: A stock Fund produced the following Return 17.5% Std Dev = 22% Beta = 1.05 Tracking Error vs. S&P…
A: The Information Ratio (IR) adjusted for beta is calculated as follows:IR = Active Return/Tracking…
Q: A key difference between the IRR and the MIRR is a. cash flows are assume be reinvested at the risk…
A: IRR is rate of return at which present value of cash flow is equal to initial investment in the…
Q: Suppose the market portfolio is equally likely to increase by 40% or decrease by 2%. Also suppose…
A: PORTFOLIO OF INVESTMENTA portfolio of investment refers to a collection of assets such as stocks,…
Q: Explain how the internal rate of return and net present value are related. If a project has an NPV…
A: In this question, we are required to determine how IRR and NPV are related and what is the IRR.
Q: Cooperton Mining just announced it will cut its dividend from $3.85 to $2.73 per share and use the…
A: Common stock or shares of the company is the security that offers the ownership rights to the…
Q: The Wildcat Oil Company is trying to decide whether to lease or buy a new computer- assisted…
A: A lease payment is a payment made under the terms of a written lease agreement between the owner of…
Q: The Japanese stock market bubble peaked at 54,000 in 1989. Two and a half years later it had fallen…
A: In this question, we are required to determine the market decline.
Q: On January 31, 2022 you purchased a newly issued 5.6% coupon bond issued by the Dana Corporation for…
A: Price of a bond is the present value of coupon payments plus the present value of the par value of…
Q: Two bonds have par values of $1,000. One is a 4%, 20 year bond priced to yield 9.5%. The other is…
A: Coupon bonds are financial instruments that, up to the bond's maturity date, provide the bondholder…
Q: The return on the Rush Corporation in the state of recession is estimated to be -23% and the return…
A: In the given case, we have provided the state of economy, return of each corporation and their…
Q: IBM stock currently sells for 64 dollars per share. The implied volatility equals 40.0. The risk -…
A: A call option gives its holder the choice to purchase the underlying asset at the predetermined…
Q: Project L requires an initial outlay at t = 0 of $80,597, its expected cash inflows are $14,000 per…
A: IRR is also known as Internal rate of Return. It is a capital budgeting technique which helps in…
Q: Last year, Cayman Corporation had sales of $6 million, total variable costs of $2 million, and total…
A: EBIT = Sales - Variable cost - Fixed cost .=$6−$2−$1=$3million.
Q: find the financial break-even quantity.
A: For calculating the financial break-even point, We need to calculate the followings:Selling Price…
Q: Suppose you wish to accumulate $20,000 over a 10-year period in an account that pays a steady 5% per…
A: The concept of time value of money will be used here. As per the concept of time value of money the…
Q: A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1…
A: IRR is also known as Internal rate of Return. It is a capital budgeting technique which helps in…
Q: Explain the importance of corporate governance to publicly-held company in relation to any interest…
A: Corporate means company and governance means set of rules and regulations. So, corporate governance…
Q: he Staal Corporation is trying to decide whether to switch to a bank that will accommodate…
A: Collection float= Number of days decreased * Average daily collections= 800000*5= 4000000
Q: You own a portfolio that has $7,806 invested in Stock A and $9,747 invested in Stock B. If the…
A: Expected return refers to the profit that are being earned by the investors over the amount of…
Q: Your company, Lariot, earns an EBIT of $25,000,000 per year, and EBIT is expected to remain constant…
A: The number of shares will be reduced if debt is issued for repurchasing the stocks of the company.…
Q: What does the option delta refer to? For a standard European put option, draw the graph of the delta…
A: Options are financial instruments that provide the holder the right, but not the obligation, to buy…
Q: The following table presents information for Golden Fleece Financial. Long-term debt outstanding…
A: WACC is to be found in case when company's cost of capital is asked. In the given case, company is…
Q: If a person wants to get back £10,000 in an investment which pays 6.7% monthly interest after 2…
A: No. of periods=No. of years * No. of interest payments.=2years∗12times=24 Periods.Rate of interest…
Q: Home Express Moving Company is considering purchasing new equipment that costs $728,000. Its…
A: Present Value: The present value (PV) of a future amount of money or stream of cash flows is the…
Q: You can distinguish the various types of bonds by their terms of contract, pledge of collateral, and…
A: Bonds are financial instruments that represent a loan made by an investor to a borrower, typically a…
Q: You need to estimate the value of Laputa Aviation. You have the following forecasts (in millions of…
A: year 1Year 2Year 3Year 4EBITDA$78$98$113$118Depreciation$38$48$53$58Pretax…
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
- Suppose that the market price of Company A is $50 per share and that of Company B is $20. If A offers half a share of common stock for each share of B, what is the percentage increase in wealth for B's shareholders? (Assume that the offer has no effect on the value of A's shares.) +25 percent −20 percent +20 percent −25 percentFirm B is willing to be acquired by firm A at a price of $16 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $180,000. Number of shares Firm A: 50000 Firm B: 80000 Price per share Firm A: $18.00 Firm B: $14.00 Debt A: $0 B: $0 What is the value of firm B to firm A?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 Firm T Shares outstanding Price per share 6,000 1,200 $ 47 $ 17 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,500. a. If Firm T is willing to be acquired for $19 per share in cash, what is the NPV of the merger? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What will the price per share of the merged firm be assuming the conditions in (a)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If Firm T is willing to be acquired for $19 per share in cash, what is the merger premium? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for…
- If an investor buys shares in a closed-end investment company for $46 and the net asset value is $53, what is the discount? If the company distributes $1, the net asset value rises to $58, and the investor sells the shares for a premium of 5 percent over the net asset value, what is the percentage earned on the investment?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 Firm T Shares outstanding 4,600 1,000 Price per share $ 40 $ 14 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $8,800. If Firm T is willing to be acquired for $16 per share in cash, what is the NPV of the a. merger? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) What will the price per share of the merged firm be assuming the conditions in b. (a)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) If Firm T is willing to be acquired for $16 per share in cash, what is the merger c. premium? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for…Firm A is planning on merging with Firm B. Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A. Firm A currently has 1,800 shares of stock outstanding at a market price of $40 a share. Firm B has 1,200 shares outstanding at a price of $47 a share. What is the value per share of the merged firm?
- 8. A, an individual, owns all 100 shares of X Co. A's basis in these shares is $1 per share ($100 total). 8b) Suppose instead that there are 2 shareholders, A and B. Each owns 50 shares of X Co. A transfers all 50 shares to X in exchange for cash of 50. How will this transaction be treated?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. Shares outstanding Price per share Firm B 5,000 $ 42 Firm T 1,600 $17 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,000. Firm T can be acquired for $19 per share in cash or by exchange of stock wherein B offers one of its share for every two of T's shares. a. Shareholders of Firm T b. Exchange ratio a. Are the shareholders of Firm T better off with the cash offer or the stock offer? b. At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) to 1Corporation A is deciding on an acquisition. Corporation A would buy all shares of corporation B, for a total of 500,000 shares of B. Currently, corporation B is expected to pay a constant dividend forever of $12 per share. The market price of B shares reflects these expectations, and the required rate of return is 4%. A can buy B shares at their current market price, and management expects to be able to exploit synergies between the two corporations and increase revenues. Thus, according to A’s management, if the acquisition takes place the dividend per share for next year is expected to be $12, but dividends are then expected to grow forever at a rate of 3% per year. The required rate of return on stock B would stay unchanged at 4%. What is the NPV of the acquisition? .
- 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 Firm T Shares outstanding 6,400 1,600 Price per share $ 48 $ 19 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $8,900. a. If Firm T is willing to be acquired for $21 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 conditions in (a)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If Firm T is willing to be acquired for $21 per share in cash, what is the merger premium? d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for every two of T's shares, what will the price per share of the merged firm be? (Do not round intermediate calculations and round your answer to 2…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 Firm T 1,300 $23 Shares outstanding 5,400 Price per share $53 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $7,900. Firm T can be acquired for $25 per share in cash or by exchange of stock wherein B offers one of its share for every two of T's shares. Are the shareholders of Firm T better off with the cash offer or the stock offer? O Share offer is better O Cash offer is better At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Exchange ratioAn investment bank agrees to underwrite an issue of 15 million shares of stock for Looney Landscaping Corporation. a. The investment bank underwrites the stock on a firm commitment basis, and agrees to pay $10.00 per share to Looney Landscaping Corporation for the 15 million shares of stock. The investment bank then sells those shares to the public for $11.50 per share. How much money does Looney Landscaping Corporation receive? What is the profit to the investment bank? If the investment bank can sell the shares for only $8.50, how much money does Looney Landscaping Corporation receive? What is the profit to the investment bank? b. Suppose, instead, that the investment bank agrees to underwrite the 15 million shares on a best efforts basis. The investment bank is able to sell 13.5 million shares for $10.00 per share, and it charges Looney Landscaping Corporation $0.325 per share sold. How much money does Looney Landscaping Corporation receive? What is the profit to the investment…