Question

In: Finance

XYZ Corporation acquires the stock of TMP Corporation for $150 million dollars. As part of the...

XYZ Corporation acquires the stock of TMP Corporation for $150 million dollars. As part of the transaction, XYZ does an appraisal and determines that the value of all of the assets of TMP is only $100 million.

Does this mean that XYZ paid too much to buy TMP? Explain your answer.

Solutions

Expert Solution

for acquiring any company there are multiple methods of valuation are avilable which are mainly

  • Price-Earnings Ratio (P/E Ratio) ...
  • Enterprise-Value-to-Sales Ratio (EV/Sales) ...
  • Book Value. ...
  • Liquidation Value. ...
  • Market Value (of Securities) ...
  • Replacement Cost Method.etc.

genrally it is assumed that for acquition if a company pays more then the net value of assets [ie. total value of assets - value of external liabilities ] acquiring company is paying more then the net worth of the company which is being acquired

however it always does not mean that An acquirer is paying too much for such acquition it depends on many factors which plays a major role in valuation for acquition

for example it depends on goodwill of another company , future synergies which is going to be created due to such acquition, distribution channel of the other company which is going to create synergy and other factors also

although there can be a optimum range for acquition which can be decide by way of valuation and negotiation .

in this case XYZ Corporation acquires the stock of TMP Corporation for $150 million dollars. As part of the transaction, XYZ does an appraisal and determines that the value of all of the assets of TMP is only $100 million

it is over valuation by the company however we cannot conclude that xyz is paying too much bcz it always depends on synergies created due to such acquition

rage can be start by  $100 million.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

The following table shows the average stock price, in dollars, of XYZ Corporation in the given...
The following table shows the average stock price, in dollars, of XYZ Corporation in the given month. Month Stock price January 2011 $43.73 February 2011 $44.23 March 2011 $44.42 April 2011 $45.21 May 2011 $45.92 (a) Find the equation of the regression line. (Let P be the stock price in dollars and t the time in months since January, 2011. Round the regression coefficients to three decimal places.) P(t) =
Prince Corporation acquires Squire Service Corporation for 1 million shares of Prince stock, valued at $30...
Prince Corporation acquires Squire Service Corporation for 1 million shares of Prince stock, valued at $30 per share. Squire is merged into Prince, although it continues to do business under the Squire Service name. Professional fees connected with the acquisition are $900,000 and costs of registering and issuing the new shares are $400,000, both paid in cash. Squire performs vehicle maintenance services for owners of auto, truck and bus fleets. Squire's balance sheet at acquisition is as follows: Cash $200,000...
Petrel Corporation acquires all of the stock of Samson Company for $30 million in cash. Samson’s...
Petrel Corporation acquires all of the stock of Samson Company for $30 million in cash. Samson’s balance sheet accounts at the date of acquisition are listed below. Date-of-acquisition fair values for Samson’s assets and liabilities are also displayed. Samson has previously unreported developed technology valued at $6 million, meeting the criteria for capitalization per ASC Topic 805. (in thousands) Book Value Dr (Cr) Fair Value Dr (Cr) Cash $2,000 $2,000 Accounts receivable 5,000 4,500 Inventories 30,000 15,000 Land, buildings and...
Part A On January 2, 2017, Mayan corporation purchased 10,000 shares of the stock of Xyz...
Part A On January 2, 2017, Mayan corporation purchased 10,000 shares of the stock of Xyz Corp., and did not obtain significant influence.  The investment is intended as a long-term investment. The stock was purchased for $5 per share, and represents a 10% ownership stake. Xyz Corp made $20,000 of net income in 2017, and paid dividends of $5,000 on December 15, 2017. On December 31, 2017, Xyz Corp's stock was trading on the open market for $8 per share at...
Consider the following data for the XYZ Company: Assets: $150 million Equity: $90 million Sales: $75...
Consider the following data for the XYZ Company: Assets: $150 million Equity: $90 million Sales: $75 million EBIT: $26 million Profit (bt) $20 million Profit (at) $15 million a) How much debt does XYZ have in its capital structure? b) How much interest is XYZ paying on this debt? What is the interest rate? c) How much in taxes is XYZ paying? What is the tax rate? d) What is XYZ company's current ROE? e) Suppose, XYZ could save $10...
A firm needs to raise 150 million dollars for the project. What are the firm's options...
A firm needs to raise 150 million dollars for the project. What are the firm's options of raising funds to finance this large capital project.
Part 1: Acquiring Assets XYZ Corporation purchased the following assets during the year. Assist XYZ Corporation...
Part 1: Acquiring Assets XYZ Corporation purchased the following assets during the year. Assist XYZ Corporation by determining the cost of each asset. Land Costs: Purchase price                                                              $119,520 Surveying fees                                                                   3,550 Title insurance                                                                   1,270 Excavating fees necessary to pass safety inspection           10,250 Building Costs: Purchase price                                                              $425,000 Title fees                                                                             7,270 Legal fees                                                                               520 Realty fees                                                                         14,560 Interest charges from the first year of the mortgage            12,400 Renovation and repair to make the...
The total book value of the common stock of Company XYZ is $50 million and the...
The total book value of the common stock of Company XYZ is $50 million and the total book value of its debt is $50 million. The debt of the company is trading at 100% of book value. The company has 5 million shares outstanding and they are selling for $14 per share. The beta of the stock is estimated to be 1,4, the expected market risk premium is 8% and the risk free rate is 4%. The tax rate is...
XYZ Corporation has total earnings of $500 Million which are projected to remain constant. XYZ also...
XYZ Corporation has total earnings of $500 Million which are projected to remain constant. XYZ also has total shares outstanding of 300 million. The corporation intends to distribute dividends to its shareholders according to the following schedule: Period 1: Give a dividend payout rate of 40% Period 2: Give a dividend payout rate of 100%. Period 3 until forever: Give a dividend payout rate of 70%. Dividends are also projected to grow at a rate of 4% every year forever....
XYZ Corporation has total earnings of $500 Million which are projected to remain constant. XYZ also...
XYZ Corporation has total earnings of $500 Million which are projected to remain constant. XYZ also has total shares outstanding of 300 million. The corporation intends to distribute dividends to its shareholders according to the following schedule: Period 1: Give a dividend payout rate of 40% Period 2: Give a dividend payout rate of 100%. Period 3 until forever: Give a dividend payout rate of 70%. Dividends are also projected to grow at a rate of 4% every year forever....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT