Exam 21: Mergers and Acquisitions Web Only

XYZ has a market value of $287,400.ABC has a market value of $611,900.ABC believes it can create $57,000 of synergy if it acquires XYZ for $300,000 in cash.What is the value of ABC following the merger? Assume both firms are all-equity financed.

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Question 1

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JLM has 6,000 shares of stock outstanding at a market price per share of $27.Hi-Tek has 30,000 shares outstanding that sell for $50 a share.By merging,$35,000 of synergy can be created.Hi-Tek is acquiring JLM for $200,000 worth of Hi-Tek stock.What is the post-merger value per share?

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Question 2

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Explain a golden parachute and justify why a firm's shareholders may be willing to agree to such an arrangement.

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Question 3

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A golden parachute provides compensation that is generally quite sizeable to top-level management should a takeover occur.While this payment is a cash outflow to the firm,it is generally acceptable to the firm's shareholders as it helps offset agency costs.In other words,the golden parachute helps managers keep shareholder interests as their main priority.Without such an arrangement,top managers will have a greater incentive to avoid a takeover even if it is detrimental to the shareholders to do so.

Dog Treats has 6,500 shares of stock outstanding at a market price per share of $11.FIDO has 15,000 shares outstanding that sell for $18 a share.By merging,$9,600 of synergy can be created.What would be the post-merger value of the combined firm if FIDO pays $75,000 to acquire Dog Treats?

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Question 4

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.

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Question 5

Some of ABS's shareholders are dissatisfied with the company's performance.These shareholders are squaring off against the principal players in the firm with each side trying to garner sufficient votes to elect their preferred candidates to the board of directors.Which one of these terms best fits this situation?

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Question 6

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

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Question 7

Which one of these statements is true?

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Question 8

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

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Question 9

Racing Motors has a market value of $210,000.PJ Racing has 20,000 shares of stock outstanding at a price per share of $40.PJ Racing is acquiring Racing Motors in an exchange for 5,625 shares of PJ Racing stock.The merger is expected to create $30,000 of synergy.The post-merger value of the firm will be and the post-merger price per share will be .

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Question 10

Firm A has a market value of $212,000 while Firm B's market value is $87,000.Firm A just acquired Firm B for $92,500 cash.What is the net present value of the acquisition if the merger creates $7,500 of synergy?

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Question 11

Does diversification achieved through a merger create value? Why or why not?

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Question 12

Western Farms just paid $65,000 cash to acquire Northern Foods.Prior to the acquisition Western Farms had 15,000 shares of stock outstanding at a price per share of $38.Northern Foods had 5,500 shares outstanding at a price per share of $10.75.The acquisition created $12,000 of synergy.What is the value of Northern Foods to Western Farms?

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Question 13

Dog Treats has 6,500 shares of stock outstanding at a market price per share of $11.FIDO has 15,000 shares outstanding that sell for $18 a share.By merging,$9,600 of synergy can be created.What would be the post-merger value of the combined firm if FIDO acquires Dog Treats in a stock acquisition valued at $75,000?

(Multiple Choice)

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Question 14

Which of these may be a source of synergy? I.Unused debt capacity II.Economies of scale III.Increase in overall revenue IV.Unused net operating losses

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Question 15

Bakers Mart just acquired Liver Works in a stock transaction.The combined firm has a post-merger value of $314,500.As independent firms,Bakers Mart was worth $212,000 and Liver Works was worth $92,100.How much synergy was created by the merger?

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Question 16

The Glass Works has a market value of $311,000.Creative Pottery has 25,000 shares of stock outstanding at a price per share of $40.Creative Pottery is acquiring The Glass Works in exchange for 8,000 shares of Creative Pottery stock.The merger is expected to create $25,000 of synergy.What will be value received by The Glass Works shareholders?

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Question 17

Low's has 12,000 shares of stock outstanding at a price per share of $16.40.Bert's has 21,000 shares outstanding at a price per share of $26.50.Bert's believes it can create $41,000 of synergy if it acquires Low's in an exchange of stock.What is the value of the combined firm following the merger? Assume both firms are all-equity financed.

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Question 18

Global Network has a market value of $898,000.AG Communications has 50,000 shares of stock outstanding at a price per share of $60.AG is acquiring Global in an exchange for 15,000 shares of AG stock.The merger is expected to create $220,000 of synergy.What will be the post-merger value of the firm?

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Question 19

On average,shareholders of the:

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Question 20

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XYZ has a market value of $287,400.ABC has a market value of $611,900.ABC believes it can create $57,000 of synergy if it acquires XYZ for $300,000 in cash.What is the value of ABC following the merger? Assume both firms are all-equity financed.

JLM has 6,000 shares of stock outstanding at a market price per share of $27.Hi-Tek has 30,000 shares outstanding that sell for $50 a share.By merging,$35,000 of synergy can be created.Hi-Tek is acquiring JLM for $200,000 worth of Hi-Tek stock.What is the post-merger value per share?

Explain a golden parachute and justify why a firm's shareholders may be willing to agree to such an arrangement.

Dog Treats has 6,500 shares of stock outstanding at a market price per share of $11.FIDO has 15,000 shares outstanding that sell for $18 a share.By merging,$9,600 of synergy can be created.What would be the post-merger value of the combined firm if FIDO pays $75,000 to acquire Dog Treats?

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

Which one of these statements is true?

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

Firm A has a market value of $212,000 while Firm B's market value is $87,000.Firm A just acquired Firm B for $92,500 cash.What is the net present value of the acquisition if the merger creates $7,500 of synergy?

Does diversification achieved through a merger create value? Why or why not?

Which of these may be a source of synergy? I.Unused debt capacity II.Economies of scale III.Increase in overall revenue IV.Unused net operating losses

Bakers Mart just acquired Liver Works in a stock transaction.The combined firm has a post-merger value of $314,500.As independent firms,Bakers Mart was worth $212,000 and Liver Works was worth $92,100.How much synergy was created by the merger?

Global Network has a market value of $898,000.AG Communications has 50,000 shares of stock outstanding at a price per share of $60.AG is acquiring Global in an exchange for 15,000 shares of AG stock.The merger is expected to create $220,000 of synergy.What will be the post-merger value of the firm?

On average,shareholders of the:

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