Chapter 26
Problems 1-15
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
Chapter 26
Question 1
Input Area:
Output Area:
Cash offer 417,000,000$
Value of company 376,000,000$
Chapter 26
Question 2
Input Area:
Firm X Firm Y
Output Area:
Pooling of interest:
Purchase method:
Asset from X (book value) 560,000$
Asset from Y (market value) 255,000$
Purchase price of Y 345,000$
Total earnings 91,000$ 13,000$
Shares outstanding 40,000 15,000
Per-share values
Market 54$ 17$
Book 14$ 4$
Merger premium 6$
Chapter 26
Question 3
Input Area:
Output Area:
Current assets 12,000$ Current liabilities 5,300$
Net fixed assets 36,000$ Long-term debt 9,800
Current assets 3,400$ Current liabilities 1,300$
Net fixed assets 6,400 Long-term debt 1,900
Chapter 26
Question 4
Input Area:
Output Area:
Market value of Loaf’s assets 12,700$
Market value of Loaf’s debt 3,200$
Meat Co.
Current assets 12,000$ Current liabilities 5,300$
Net fixed assets 36,000$ Long-term debt 9,800$
Current assets 3,400$ Current liabilities 1,300$
Net fixed assets 6,400$ Long-term debt 1,900$
Fair market value 9,300$
Chapter 26
Question 5
Input Area:
Output Area:
Silver Enterprises – Post Merger
Silver Enterprises
Current assets 4,800$ Current liabilities 2,800$
Other assets 1,200 Long-term debt 7,500
Net fixed assets 15,300 Equity 11,000
Current assets 1,300$ Current liabilities 1,350$
Other assets 510 Long-term debt –
Net fixed assets 6,800 Equity 7,260
Chapter 26
Question 6
Input Area:
Output Area:
Silver Enterprises
Silver Enterprises – Post Merger
Current assets 4,800$ Current liabilities 2,800$
Other assets 1,200 Long-term debt 7,500
Net fixed assets 15,300 Equity 11,000
Current assets 1,300$ Current liabilities 1,350$
Other assets 510 Long-term debt –
Net fixed assets 6,800 Equity 7,260
Market value of fixed assets 8,700$
New long-term debt 13,000$
Chapter 26
Question 7
Input Area:
Output Area:
After-tax annual cash flow 2,000,000$
Teller market value 43,000,000$
Penn market value 89,000,000$
Discount rate 10%
Stock offer 40%
Cash offer 61,000,000$
Chapter 26
Question 8
Input Area:
Output Area:
Price-earnings ratio 13.50 21.00
Shares outstanding 90,000 210,000
Shareholders receive 1 for 3
Chapter 26
Question 9,10
Input Area:
Firm B Firm T
Output Area:
Value of cash offer 21.00$
Value of share offer 23.66$
The shareholders are better off with the
receive a higher value for their shares.
Shares outstanding 5,400 1,500
Share price 47.00$ 19.00$
Synergy benefits 8,700$
Acquisition price 21.00$
Chapter 26
Question 11
Input Area:
Firm A Firm B
Output Area:
Cost 9,800$
Shares given up by A 227.91
Total earnings 2,100$ 600$
Shares outstanding 1,000 200
Price per share 43$ 47$
Acquisition price 49$
Chapter 26
Question 12
Output Area:
Chapter 26
Question 13
Input Area:
Output Area:
Incremental aftertax cash flows 350,000$
Flash-in-the-Pan market value 9,000,000$
Fly-by-Night market value 23,000,000$
Discount rate 8%
Stock offer 35%
Cash offer 12,000,000$
Chapter 26
Question 14
Input Area:
Harrod’s market value 125,000,000£
Output Area:
Harrod’s shares outstanding 5,000,000
Selfridge market value 40,000,000£
Selfridge shares outstanding 2,000,000
Combined firm value 185,000,000£
Merger premium 10,000,000£
Chapter 26
Question 15
Input Area:
BQ iReport
Output Area:
Price-earnings ratio 14.50 9.20
Shares outstanding 1,300,000 175,000
Analyst growth rate 5%
Management growth rate 7%