Exam 21: Mergers and Acquisitions Web Only

The cost of capital of Firm A is 11.2 percent compared to 14.1 percent for Firm B.The market rate of return is 10.8 percent and the risk-free rate is 4 percent.Firm A is considering the acquisition of Firm B.Should this acquisition occur,it will be financed with debt at an interest cost of 8.7 percent.Which of these rates is most appropriate to use as the discount rate when analyzing the acquisition of Firm B by Firm A?

Racing Motors has a market value of $187,000.PJ Racing has 22,500 shares of stock outstanding at a price per share of $43.PJ Racing is acquiring Racing Motors in an exchange for 4,350 shares of PJ Racing stock.The merger is expected to create $21,000 of synergy.The postmerger value of the firm will be ________ and the postmerger price per share will be ________.

Which one of these statements is true?

Staggered elections

Which two of these are required for an acquisition to be considered tax-free? I.The bidder must purchase the target firm for less than its current market value. II.The acquisition must have a business purpose other than the avoidance of taxes. III.The stockholders in the target firm must retain an equity interest in the bidder. IV.The acquisition must be a lump sum cash transaction.

Which one of these should be the primary appeal of unused debt capacity to a bidder firm?

Which one of these defines the maximum price that a bidder should pay for a target firm?

LTL has 9,000 shares of stock outstanding at a market price per share of $21.STS has 45,000 shares outstanding that sell for $39 a share.By merging,$15,200 of synergy can be created.What would be the postmerger value of the combined firm if STS acquires LTL in a stock acquisition valued at $200,000?

When a small number of investors acquire all of the equity shares in a firm using borrowed funds,the transaction is best described as a

If the acquirer wants the target firm's managers to stay in place,at least for a stated period of time,the acquirer should employ the tactic known as a

Which one of these is the best justification for acquiring a firm?

Carlisle's Market has a market value of $789,000 while World's market value is $213,000.Carlisle's just acquired World for $225,000 cash.What is the net present value of the acquisition if the merger creates $26,000 of synergy from cost efficiencies?

As it applies to an acquisition,the term goodwill is defined as the difference between the

Which one of these statements is correct?

Dog Treats has 7,500 shares of stock outstanding at a market price per share of $13.FIDO has 22,000 shares outstanding that sell for $26 a share.By merging,$12,600 of synergy can be created.What would be the postmerger value of the combined firm if FIDO pays $100,000 to acquire Dog Treats?

ABC created a new company,XYZ,from its subsidiary unit and maintained ownership of all of the shares in XYZ.When ABC felt market conditions were favorable,it did an IPO and sold 25 percent of its shares in XYZ.ABC has effectively completed

Which one of these statements is true?

Under the purchase accounting method,

Share rights plans

Al's Market has a market value of $418,900.Liza's has a market value of $724,500.Liza's believes it can create $46,000 of synergy if it acquires Al's for $425,000 in cash.What is the value of the firm following the merger? Assume both firms are all-equity financed.