Question
In: Accounting
Company A has a market value of equity of $2,000 million and 80 million shares outstanding....
Company A has a market value of equity of $2,000 million and 80 million shares outstanding. Company B has a market value of equity of $400 million and 25 million shares outstanding. Company A announces at the beginning of 2019 that is going to acquire Company B.
The projected pre-tax gains in operating income (in millions of $) from the merger are:
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| Pre-tax Gains in Operating Income | 12 | 16 | 28 | 38 |
45 |
The projected pre-tax gains in operating income are expected to grow at 4% after year 2023. The company is using a discount rate of 8% to value the synergies. The marginal corporate tax rate is 35%.
Company A has decided to pay a $300 million premium for Company B. Assume that capital markets are efficient and that there is a 100% probability the deal will be closed.
1/ By how much the price per share of Company A would change at the time of the announcement of the acquisition?
2/ If Company A were to make a 100% stock offer for Company B, what would the exchange ratio be? Remember that the exchange ratio is the number of Company A’s shares that the shareholders of Company B will receive in exchange for each of their shares.
3/ If Company A were to offer 0.80 share of Company A for each share of company B, by how much the price per share of Company A would change at the time of the announcement of the acquisition?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Company A has a market value of equity of $2,000 million and 80 million shares outstanding....
Company A has a market value of equity of $2,000 million and 80
million shares outstanding. Company B has a market value of equity
of $400 million and 25 million shares outstanding. Company A
announces at the beginning of 2019 that is going to acquire Company
B.
The projected pre-tax gains in operating income (in millions of
$) from the merger are:
2019
2020
2021
2022
2023
Pre-tax Gains in Operating Income
12
16
28
38
45
The projected pre-tax...
Company A has a market value of equity of $2,000 million and 80 million shares outstanding....
Company A has a market value of equity of $2,000 million and 80
million shares outstanding. Company B has a market value of equity
of $400 million and 25 million shares outstanding. Company A
announces at the beginning of 2019 that is going to acquire Company
B.
The projected pre-tax gains in operating income (in millions of
$) from the merger are:
2019
2020
2021
2022
2023
Pre-tax Gains in Operating Income
12
16
28
38
45
The projected pre-tax...
Company A has a market value of equity of $2,000 million and 80 million shares outstanding....
Company A has a market value of equity of $2,000 million and 80
million shares outstanding. Company B has a market value of equity
of $400 million and 25 million shares outstanding. Company A
announces at the beginning of 2019 that is going to acquire Company
B.
The projected pre-tax gains in operating income (in millions of
$) from the merger are:
2019
2020
2021
2022
2023
Pre-tax Gains in Operating Income
12
16
28
38
45
The projected pre-tax...
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YQR has a market value of $125 million and 5 million shares
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Your company is an all-equity firm and has 1 million shares
outstanding and its current market value is $10 million, with an
operating income (EBIT) is $1.5 million. This morning your company
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4. YQR has a market value of $125 million and 5 million shares outstanding. HKG has...
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Little Oil has outstanding one million shares with a total market value of $20 million. The...
Little Oil has outstanding one million shares with a total
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