Sweet Cola Corp. (SCC) is bidding to take over Salty Dog Pretzels (SDP). SCC has
ID: 2688324 • Letter: S
Question
Sweet Cola Corp. (SCC) is bidding to take over Salty Dog Pretzels (SDP). SCC has 3,000 shares outstanding, selling at $50 per share. SDP has 2,000 shares outstanding, selling at $17.50 a share. SCC estimates the economic gain from the merger to be $15,000.
If SDP can be acquired for $20 a share, what is the NPV of the merger to SCC?
What will SCC sell for when the market learns that it plans to acquire SDP for $20 a share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What are the percentage gains to the shareholders of each firm? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Now suppose that the merger takes place through an exchange of stock. On the basis of the premerger prices of the firms, SCC sells for $50, so instead of paying $20 cash, SCC issues .40 of its shares for every SDP share acquired. What will be the price of the merged firm? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
What is the NPV of the merger to SCC when it uses an exchange of stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
a.If SDP can be acquired for $20 a share, what is the NPV of the merger to SCC?
Explanation / Answer
Hi, Please find the answers as follows: SCC value = 3,000*50 = 150,000 SDP value = 2,000 *17.50 = 35,000 Gain = 15,000 Part A: Cost of merger to SCC = (20
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