Exam 31: Mergers

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Companies A and B are valued as follows: Companies A and B are valued as follows:    Company A now acquires B by offering one (new)share of A for every two shares of B (that is,after the merger,there are 2500 shares of A outstanding).Suppose that the merger really does increase the value of the combined firms by $20,000..What is the cost of the merger? Company A now acquires B by offering one (new)share of A for every two shares of B (that is,after the merger,there are 2500 shares of A outstanding).Suppose that the merger really does increase the value of the combined firms by $20,000..What is the cost of the merger?

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D

Firm A has a value of $100 million and Firm B has a value of $70 million.Merging the two would enable cost savings with a present value of $20 million.Firm A purchases Firm B for $75 million.What is the gain from this merger?

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B

Following an acquisition,the acquiring firm's balance sheet shows an asset labeled "goodwill." What form of merger accounting was used?

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C

Merging in order to lower financing costs is likely to fail for the following reason:

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The following are sensible motives for mergers EXCEPT:

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The following are sensible motives for mergers: I.prevent target firm from wasting surplus funds; II.eliminate target firm inefficiencies; III.complementary resources; IV.increasing earnings per share (EPS)

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Briefly explain the term economies of scale.

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The main difference to shareholders between a tax-free and a taxable acquisition is that: I.in a tax-free acquisition the shares are only exchanged,while in a taxable transaction the shares are considered sold and realized capital gains or losses are taxed; II.in a tax-free acquisition a capital gain or loss is realized and then new shares are issued; in a taxable transaction the assets are revalued,taxed on any capital gains or losses,and then shares are exchanged; III.in a tax-free acquisition the shareholders simply take the cash and depart,while in a taxable transaction the shareholders must stay with the new entity

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A would-be acquirer making a tender offer directly to shareholders represents another form of a proxy fight.

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The DOC Corporation with a book value of $20 million and a market value of $30 million has acquired the CIC Corporation with a book value of $6 million and a market value of $8 million at a price of $9 million.If the transaction is a purchase,will there be any goodwill,and if so,what is the amount of goodwill?

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Discuss the difficulties associated with a typical merger.

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A poison pill defense may be implemented by:

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The following are dubious reasons for mergers: I.diversification; II.increase earnings per share (EPS); III.lower financing costs; IV.industry consolidation

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Who are antitakeover defenses designed to protect?

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Name the agencies that have successfully blocked mergers on antitrust (antimonopoly)grounds.

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Firm A has a value of $150 million and Firm B has a value of $100 million.Merging the two would enable cost savings with a present value of $40 million.Firm A purchases Firm B for $120 million.What is the gain from this merger?

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The following data on a merger is given: Firm A Firm B Firm AB Price per share \ 100 \ 10 Total earnings \ 500 \ 300 Shares outstanding 100 40 Total value \ 10,000 \ 400 \ 11,000 Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the postmerger P/E ratio assuming cash is used in the acquisition.

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What role do hedge funds take when they speculate on merger activity by buying stock of firms that are "in play"?

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Briefly explain what is meant by the economic gain from a merger?

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In the purchase method of merger accounting a new asset category called goodwill is created.

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