Item Firm a Firm B outstanding shares 2000 1000 price per share US$40 US$20 Consider the...

Item	Firm a	Firm B
outstanding shares	2000	1000
price per share	US$40	US$20

Consider the following information above for Firms A and B.

Firm A is considering taking over Firm B.The synergy benefits from the takeover are estimated at US $5000

(A) At a cash consideration of US$22 per share, what is the NPV of acquisition to firm A?

(B) Assuming the cash consideration in part (A) above ,what will be post merger price per share?

(C) Considering the cash consideration in part (A),what is the amount of merger premium

(D) if the terms of merger provide for a stock consideration,with an exchange ratio of 1:2,what will be the NPV of acquisition to Firm A?what will be the post-Merger Price ?

(E)If an amount of US$22000 is used as the consideration amount but the terms of merger provide for a stock consideration ,how will your answer to part (D)above change?comment on the difference in your answers(if any ).

(F) What will be the NPV of Acquisition for Firm B in parts (A) , (D) and (E)

Expert Solution

jeff jeffy answered 1 year ago

Company A currently has a stock price $20/per share, with outstanding shares 2 Mil shares. It...

Company A currently has a stock price $20/per share, with outstanding shares 2 Mil shares. It also has outstanding debt of 20 Mil. Tax rate is 30%. Its annual bond with 10 year maturity date has a price now $886, par value $1000 and coupon rate is 7%. It has a beta of risk 1.2, risk free rate 4% and market index return 9%. Please answer following parts with above information Part1) what is the cost of debt before tax?...

A firm has 5 million shares outstanding with a market price of $35 per share. The...

A firm has 5 million shares outstanding with a market price of $35 per share. The firm has $15 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What is the firm's value of operations after the repurchase? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places....

Piper Co has 40 million shares outstanding, trading for $10 per share. In addition, the firm...

Piper Co has 40 million shares outstanding, trading for $10 per share. In addition, the firm has $106 million in outstanding debt. Suppose the equity cost of capital is 15%, its debt cost of capital is 8% and the tax rate is 40%: a) What is the WACC? b)If the risk free rate is 15% and the Rm is 9%, what are the leveraged and unleveraged betas?

KD Industries has 30 million shares outstanding with a market price of $20 per share and...

KD Industries has 30 million shares outstanding with a market price of $20 per share and no debt. KD has had consistently stable earnings, and pays a 21% tax rate. Management plans to borrow $200 million on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares. If KD expects the share price to increase from $20 per share to a new share price on announcement of the transaction and before...

8) Acort Industries has 10 million shares outstanding and a current share price of $40 per...

8) Acort Industries has 10 million shares outstanding and a current share price of $40 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 10%, and has a $100 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 6%. Acort has EBIT of $106 million, which...

Your firm has 10 million shares outstanding currently priced at $40 a share. There is no...

Your firm has 10 million shares outstanding currently priced at $40 a share. There is no debt. The firm wishes to raise $15 million through a rights-issue with subscription price of $15. a) How many rights would be needed to buy a new share? b) What is the total value of the firm before and after the rights-issue? c) What is the total number of shares after rights-issue? d) What is the share price after the issue (the ex-rights price)?...

Firm AAA’s stock is currently trading at $2 per share. The Total Shares Outstanding of Firm...

Firm AAA’s stock is currently trading at $2 per share. The Total Shares Outstanding of Firm AAA is 3 billion. Based on this information is this a Mid-Cap firm, Micro-Cap firm, Large Cap firm, or small cap firm? Firm DDD has Current Assets = $50 and Current Liabilities = $100. Which of the following is the correct Current Ratio of this firm? a. 0.5 b. 0.005 c. 1 d. 2 Which of the following financial ratio is forward-looking: (I) Asset...

Suppose a firm has 10 million shares of common stock outstanding at a price of $40...

Suppose a firm has 10 million shares of common stock outstanding at a price of $40 per share. The firm also has 300,000 bonds outstanding with a current price of $1050. The outstanding bonds have yield to maturity 7.1%. The firm's common stock beta is 1.4 and the corporate tax rate is 35%. The expected stock market return is 10% and the T-bill rate is 1.5%. What is the WACC for this firm? (Enter your answer to 4 decimal places...

The J. Miles Corp. has 25 million shares outstanding with a share price of $ 20...

The J. Miles Corp. has 25 million shares outstanding with a share price of $ 20 per share. Miles also has outstanding zero-coupon debt with a 5-year maturity, a face value of $ 900 million, and a yield to maturity of 9 %. The risk-free interest rate is 5 %. a. What is the implied volatility of Miles' assets? b. What is the minimum profitability index required for equity holders to gain by funding a new investment that does not...

Acort Industries has 11 million shares outstanding and a current share price of $45 per share....

Acort Industries has 11 million shares outstanding and a current share price of $45 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 10%, and has a $120 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 6%. Acort has EBIT of $106 million, which is...

Question