Type 2D: ABC Inc. is considering the acquisition of Togo Company. respectively. ABC's financial managers estimate that by combining the two companies, it will reduce IT and administrative costs by $800,000 per year for the next 15 years. ABC would either pay $18 million cash for Togo or offer Togo a 304 holding in the new combined firm. The market values of the two companies as separate entities are $40 million and $15 million, If the opportunity cost of capital is 124, a) What is the gain from merger? b) What is the cost of the cash offer? c) What is the cost of the atock alternative? d) What is the NPV of the acquisition under the cash offer? e) What is the NPV under the stock offer?

Type 2D: ABC Inc. is considering the acquisition of Togo Company. respectively. ABC's financial managers estimate that by combining the two companies, it will reduce IT and administrative costs by $800,000 per year for the next 15 years. ABC would either pay $18 million cash for Togo or offer Togo a 304 holding in the new combined firm. The market values of the two companies as separate entities are $40 million and $15 million, If the opportunity cost of capital is 124, a) What is the gain from merger? b) What is the cost of the cash offer? c) What is the cost of the atock alternative? d) What is the NPV of the acquisition under the cash offer? e) What is the NPV under the stock offer?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Kaplan Ltd is contemplating the acquisition of Baron Incorporation. The values of the two companies as separate entities are GH¢ 30 million and GH¢ 10 million, respectively. Kaplan estimates that by combining the two companies, it will reduce marketing and administration cost by GH¢ 700,000 per year in perpetuity. Kaplan can either pay GH¢ 15 million cash for Baron Inc, or offer Baron a 50% holding in the combined firm. The opportunity cost of capital is 10%. Required: 1. What is the NPV of the acquisition under the cash offer? 2. What is the NPV under the stock offer? 3. Discuss five (5) defense mechanisms that target firms should be allowed to put in place to resist possible takeovers
Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two companies as separate entities are $42 million and $21 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $610,000 per year in perpetuity. Velcro Saddles considers offering Skiers’ shareholders a 50% holding in Velcro Saddles. The opportunity cost of capital is 10%. a. What is the value of the stock in the merged company held by the original Skiers’ shareholders? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is the cost of the stock alternative? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) c. What is the merger’s NPV under the stock offer? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions…
Aussie Ltd is considering the acquisition of Kiwi Ltd. The values of the two companies as separate entities are $20 million and $10 million, respectively. Each firm has 2 million shares outstanding. Aussie estimates that by combining the two companies, it will reduce the selling and administrative costs by $150,000 p.a. in perpetuity with no change in risk. Assume the cost of capital for the new firm is 10% p.a. What is the total gain, in present value terms, from the merger? a. $500,000 b. $150,000 c. $1,500,000 d. $1,000,000 e. None of the above
Velcro Saddles is contemplating the acquisition of Skiers Airbags Incorporated. The values of the two companies as separate entities are $46 million and $23 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $630,000 per year in perpetuity, Velcro Saddles is willing to pay $28 million cash for Skiers'. The opportunity cost of capital is 7%. What is the gain from the merger? Note: Enter your answer in millions rounded to 2 decimal places. What is the cost of the cash offer? Note: Enter your answer in millions. What is the NPV of the acquisition under the cash offer? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two companies as separate entities are $50 million and $25 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $650,000 per year in perpetuity. Velcro Saddles is willing to pay $27 million cash for Skiers’. The opportunity cost of capital is 10%. a. What is the gain from the merger? (Enter your answer in millions rounded to 2 decimal places.) b. What is the cost of the cash offer? (Enter your answer in millions.) c. What is the NPV of the acquisition under the cash offer? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
Tom Corporation is considering the acquisition of Jerry Corporation. Jerry Corporation has free cash flows to debt and equity holders of $3,750,000. If Tom Corporations acquires Jerry Corporation, Jerry will reduce operating costs by $1,500,000. This will increase free cash flow to $4,900,000. Assume that cash flows occur at year-end and the weighted average cost of capital is 9%. a. What is the value of Jerry Corporation without a merger? o. What is the value of Jerry Corporation with the merger?
Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $500,000 per year in perpetuity. Velcro Saddles is willing to pay $14 million cash for Skiers’. The opportunity cost of capital is 8%. a. What is the gain from the merger? b. What is the cost of the cash offer? c. What is the NPV of the acquisition under the cash offer? Please answer fast i give you upvote.
The financial manager of Company X is evaluating Company Y as a possible acquisition. Company Y is expected to produce annual earnings before interest and taxes P485,000. Depreciation write-offs on Company Y's assets are Pl20,000 annually. Both companies have a 34% marginal tax rate. If the merger takes place, Company X will assume P1,425,000 of Company Y's long-term liabilities. Company X's weighted average cost of capital is 9.25% and Company Y's weighted average cost of capital is 14.75%. The acquisition will be evaluated as a perpetuity. If Company X acquires Company Y for PI,125,000 in cash, then the estimated change in the combined wealth of Company X's shareholders will be nearest P433,729 increase. b. 10. a. P1,558,729 increase. P379,830 decrease. d. с. P2,207,838 increase. The following information refers to Questions No. 11 and 12: Ebony Corporation has negotiated the acquisition of Ivory Company in an exchange of shares. Under the terms of the merger, the exchange ratio will…
The financial manager of Company A is evaluating Company B as a possible acquisition. Company B is expected to produce annual after- tax operating cash flows of P500,000. If the merger takes place, Company A will assume P1,250,000 of Company B's long-term liabilities. Company A's weighted average cost of capital is 11% and Company B's weighted average cost of capital is 14.5%. The acquisition will be evaluated as a perpetuity. Based on this information, the estimated value of the target company is nearest P3,448,276. P2,198,276. P4,545,455. d. 9. a. b. C. P3,295,455.
ABC Holdings Corporation will be acquiring 100% ownership of XYZ Corporation. The latter currently has annual returns of P1,180,000, a required rate of return of 16%, and a remaining business life of 3 years. If ABC Holding Corporation acquires XYZ, this life will be extended to 10 years but its operating risk will also increase. The required rate of return on XYZ would become 17%. What is the value of control that ABC sees in acquiring XY
Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Inc. The values of the two companies as separate entities are $50 million and $11 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $515,000 per year in perpetuity. Velcro Saddles can either pay $15 million cash for Skiers’ or offer Skiers’ a 48% holding in Velcro Saddles. The opportunity cost of capital is 10%. Required: What is the gain from merger? (Enter your answer in millions rounded to 2 decimal places.) What is the cost of the cash offer? (Enter your answer in millions.) What is the cost of the stock alternative? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) What is the NPV of the acquisition under the cash offer? (Enter your answer in millions rounded to 2 decimal places.) What is its NPV under the stock offer? (Do not round intermediate calculations. A negative answer…
Almony Ltd has announced a cash offer to acquire Bricker Co. Almony Ltd’s shares are trading at $27 and there are 3 million shares of outstanding. Bricker Co’s shares are trading at $4 and there are 1.5 million shares outstanding. Almony Ltd estimates that the acquisition will incur integration costs of $400,000 each year for the first three years. Almony Ltd expects to be able to reduce overlapping capital expenditures by $750,000 in the first five years of the acquisition. The required rate of return for Almony Ltd is 8%. Assume cash flows occur at the end of each year. Based on this information , what is the maximum price Almony Ltd can offer before destroying shareholder value? * with detailed calculation.

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