l: Problems seive full/partial credit, please t four decimal places (24 points)
ID: 2803323 • Letter: L
Question
l: Problems seive full/partial credit, please t four decimal places (24 points) Firm Ais considering making an offer t purchase Firm B. The treasurer of Firm A has ollected the following information: Firm B Shares outstanding Price per share Firm A 1,500 $34 $24 Both firms have no debt. After research, the treasurer of firm A believes that the value of the synergistic benefits from acquisition would be $3,000. a. What would the value of synergy be? What would the value of Firm B t b. Assume that Firm A offers $26 in cash for each outstanding share of Firm B. What would the total merger premium be? What would the NPV What will the price per share of the merged f of the acquisition be? assuming the condi firm be a d. Suppose Firm B is agreeable to a merger by an exchange of stock.itFrmns in (b)? ered to Firm B's c. shares for every five of Firm B's shares, how many shares will be off shareholders and what will the price per share of the merged firm be? what is the NPV of the acquisition assuming the conditions in (d)? e.Explanation / Answer
(a) Value of the firm B would be 900 shares * $24 = $21,600. Synergic benefit value to firm A would be $3,000.
(b) Consideration for firm B = 900 shares * $26 = $23,400.
Value of firm A = 1,500 shares * $34 = $51,000
Total value of the merged entity would be $23,400 + $51,000 = $74,400
For calculation of NPV, information of discount rate and period for which discount needs to be applied are required
(c) Price per share would be $74,400 / (1,500 + 900) = $74,400 / 2,400 shares = $31 per share
(d) The number of shares of firm A to be issued to firm B = 900 / 5 * 3 = 540 shares
Total number of shares of merged firm = 1,500 + 540 = 2,040 shares
The price per share of the merged firm would be $34 i.e. price per share of firm A
(e) To determine NPV, information of discount rate and period for which discount rate needs to be applied are required.
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