Question 1 Company A offers $30 per share to acquire Company B. Company\'s B est

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Question 1 Company A offers $30 per share to acquire Company B. Company's B estimated value of equity is $50 million, it has debt of 5 million, and outstanding shares of 2 million. This will probably result in: no change in Company B's stock price a decrease in Company B's stock price an increase in Company A's stock price Correct! a decrease in Company A's stock price none of the above Question 2 In a financial merger: the merged companies combine operations Equity is used to finance the merger Debt is used to finance the merger Correct! the merged companies do not combine operations none of the above Question 3 Delta Airlines and Northwest Airlines merged in 2008. This merger is an example of: a vertical merger Correct! a horizontal merger a conglomerate merger more information is needed to answer this question none of the above Question 4 Delta airlines acquired an oil refinery in Pennsylvania in 2012. This is an example of: a vertical merger a horizontal merger You Answered a conglomerate merger more information is needed to answer this question none of the above Question 5 Company A is interested in acquiring Company B. Estimated present value of Company B is $1 billion. Company B has 50 million shares of stock outstanding and no debt. Company B's book value is $22.50. Without considering possible synergies, what is the maximum price per share that Company A should offer? $16.25 $22.50 $20.00 $25.25 You Answered none of the above Question 6 The December Treasury bond futures contract has a quoted price of 95'18. If annual interest rates go up by 1.00 percentage point, what is the value of one contract? $85,538.15 $85,622.89 $88,845.41 85,211.70 You Answered none of the above Question 7 Two companies are evaluating a possible swap. Company A can issue floating-rate debt at LIBOR + 1%, and it can issue fixed rate debt at 9%. Company B can issue floating-rate debt at LIBOR + 1.5%, and it can issue fixed-rate debt at 9.4%. If A issues floating-rate debt and B issues fixed-rate debt, and then they engage in the following swap: A will make a fixed 7.95% payment to B, and B will make a floating-rate payment equal to LIBOR to A. Which of the following statements is correct? The swap is advantageous to A, but not to B You Answered The swap is advantageous to B, but not to A The swap is advantageous to both A and B The swap is not advantageous to either A or B none of the above Question 8 "The June Treasury bond futures contract has a quoted price of 102'12. Are current market interest rates higher or lower than the standardized rate on a futures contract? higher, because the contract is selling at a discount higher, because the contract is selling at a premium Correct! lower, because the contract is selling at a premium more information is required to answer this question None of the above answers is correct Question 9 The June Treasury bond futures contract has a quoted price of 102'12. What is the current value of one contract in dollars? 90,180 90,563 You Answered 102,120 102,375 none of the above Question 10 The June Treasury bond futures contract has a quoted price of 102'12. What is the implied annual interest rate? 5.80% You Answered 2.90% 5.85% 3.05% none of the above

Explanation / Answer

1) The merger shall probably result in a decrease in Company A's stock price,usually the Acquirer price declines post offer and the target price increases due to the higher price paid for the target stock.

2)In a financial merger the merged companies do not combine operations.The companies shall not be operated as a single unit,the incremental cash flows due to merger for Acquirer s will simply be the expected cash flows of the target firm.

3)The merger in which the competitor buys another competitor operating in the same business to gain market share and gain other distinctive advantage is an example of horizontal merger.

4)In this merger the Company is doing Vertical Integration- Internalizing crucial forward or backward activities is an example of vertical merger.The company is integrating its backward supply chain that is buying oil.

5)the maximum price per share that Company A should offer=present value of Company B/shares of stock outstanding =1000 million/ 50 million=$ 20

7)Company A pays  floating-rate debt at LIBOR + 1%(issue) and receive LIBOR from B under the swap and pay 7.95% to B under the swap thereby net pay by A=LIBOR + 1%-LIBOR+7.95% =8.95% which is < 9% the fixed rate at which A can borrow therfore swap is advantageous to A.B will pay 9.4% (issue)and receive 7.95% from A under the swap and pay LIBOR  under the swap so that net pay is LIBOR+9.4%- 7.95%= LIBOR+1.45%<LIBOR + 1.5% the floating rate at which B can borrow so swap is also  advantageous to B.Thus The swap is advantageous to both A and B.

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