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80.
Assume the following balance sheets are stated at book value.
What will be the value of the equity account on the postmerger balance
sheet assuming that Meat Co. purchases Loaf, Inc. and the pooling of
interests method of accounting is used.
81.
Assume the following balance sheets are stated at book value.
Suppose the fair market value of Loaf's fixed assets is $7,200 versus the
$3,300 book value shown. Meat pays $10,200 for Loaf and raises the
needed funds through an issue of long-term debt. Assume the purchase
method of accounting is used. The post-merger balance sheet of Meat Co.
will have total debt of ______ and total equity of ______.
82.
Silver Enterprises has acquired All Gold Mining in a merger transaction. The
following balance sheets represent the premerger book values for both
firms.
Assume the merger is treated as a pooling of interests for accounting
purposes. The total assets are _____ and the total equity is _____ on the
post-merger balance sheet.
83.
Silver Enterprises has acquired All Gold Mining in a merger transaction. The
following balance sheets represent the premerger book values for both
firms.
Assume the merger is treated as a purchase for accounting purposes. The
market value of All Gold Mining's fixed assets is $3,800; the market values
for current and other assets are the same as the book values. Assume that
Silver Enterprises issues $5,000 in new long-term debt to finance the
acquisition. The post-merger balance sheet will reflect goodwill of _____
and total equity of _____.
84.
Penn Corp. is analyzing the possible acquisition of Teller Company. Both
firms have no debt. Penn believes the acquisition will increase its total
aftertax annual cash flows by $3.7 million indefinitely. The current market
value of Teller is $103 million, and that of Penn is $151.7 million. The
appropriate discount rate for the incremental cash flows is 9 percent. Penn
is trying to decide whether it should offer 40 percent of its stock of $127
million in cash to Teller's shareholders. The cost of the cash alternative is
_____, while the cost of the stock alternative is _____.
85.
The shareholders of Jolie Company have voted in favor of a buyout offer
from Pitt Corporation. Information about each firm is given here:
Jolie's shareholders will receive one share of Pitt stock for every three
shares they hold in Jolie. Assume the NPV of the acquisition is zero. What
will the post-merger PE ratio be for Pitt?
86.
Consider the following premerger information about a bidding firm (Firm B)
and a target firm (Firm T). Assume that neither firm has any debt
outstanding.
Firm B has estimated that the value of the synergistic benefits from
acquiring Firm T is $2,500. What is the NPV of the merger assuming that
Firm T is willing to be acquired for $28 per share in cash?
87.
Consider the following premerger information about Firm A and Firm B:
Assume that Firm A acquires Firm B via an exchange of stock at a price of
$25 for each share of B's stock. Both A and B have no debt outstanding.
What will the earnings per share of Firm A be after the merger?
Essay Questions
88.
Empirical evidence indicates that the returns to shareholders of the target
firm vary significantly from the returns to the shareholders of the acquiring
firm. Identify the shareholders that tend to realize the smaller return and
provide some possible explanation for these low returns.
89.
Identify the three basic legal procedures that one firm can use to acquire
another and briefly discuss the advantages and disadvantages of each.
90.
Defensive merger tactics are designed to thwart unwanted takeovers and
mergers. Do such activities work to the advantage of shareholders all of the
time? Are these types of activities ethical? Who do you think benefits the
most from these activities?
91.
Firms can frequently create synergy by merging and sharing complementary
resources with another firm. Give two examples of situations where this
would most likely occur.
