Question 1

JLM has 6,000 shares of stock outstanding at a market price per share of $27.Hi-Tek has 30,000 shares outstanding that sell for $50 a share.By merging,$35,000 of synergy can be created.Hi-Tek is acquiring JLM for $200,000 worth of Hi-Tek stock.What is the post-merger value per share?
A)$50.00
B)$56.57
C)$49.91
D)$51.17
E)$48.83

Accepted Answer

Number of shares needed for the acquisition = $200,000/$50 = 4,000 sharesNumber of post-merger shares = 30,000 + 4,000 = 34,000 sharesV_AB = (30,000 × $50)+ (6,000 × $27)+ $35,000 = $1,697,000Post-merger share value = $1,697,000/34,000 = $49.91

Question 2

Carlisle's Market has a market value of $429,000 while Food World's market value is $191,000.Carlisle's just acquired Food World for $200,000 cash.What is the net present value of the acquisition if the merger creates $28,000 of synergy from cost efficiencies?
A)$19,000
B)$17,000
C)-$9,000
D)$37,000
E)$219,000

Accepted Answer

NPV = $191,000 + 28,000 - 200,000 = $19,000

Question 3

Wilson's has 5,000 shares of stock outstanding at a market price per share of $16.Albertsen's has 20,000 shares outstanding that sell for $25 a share.By merging,$15,000 of synergy can be created.Albertsen's is acquiring Wilson's for $85,000 worth of Albertsen stock.What is the post-merger value per share?
A)$25.43
B)$25.00
C)$25.75
D)$24.25
E)$25.12

Accepted Answer

Number of shares needed for the acquisition = $85,000/$25 = 3,400 sharesNumber of post-merger shares = 20,000 + 3,400 = 23,400 sharesV_AB = (20,000 × $25)+ (5,000 × $16)+ $15,000 = $595,000Post-merger share value = $595,000/23,400 = $25.43

Question 4

The Glass Works has a market value of $311,000.Creative Pottery has 25,000 shares of stock outstanding at a price per share of $40.Creative Pottery is acquiring The Glass Works in exchange for 8,000 shares of Creative Pottery stock.The merger is expected to create $25,000 of synergy.What will be value received by The Glass Works shareholders?
A)$320,000
B)$324,608
C)$323,879
D)$319,600
E)$325,701

Accepted Answer

Number of post-merger shares = 25,000 + 8,000 = 33,000 sharesV_AB = (25,000 × $40)+ $311,000 + $25,000 = $1,336,000Value received by The Glass Works shareholders = ($1,336,000/33,000)× 8,000 = $323,879

Question 5

Explain the pros and cons of a cash acquisition over a stock acquisition.

Accepted Answer

The answer of Explain the pros and cons of a...

Question 6

Firm A has a market value of $212,000 while Firm B's market value is $87,000.Firm A just acquired Firm B for $92,500 cash.What is the net present value of the acquisition if the merger creates $7,500 of synergy?
A)$7,500
B)$94,500
C)-$5,500
D)$2,000
E)-$13,000

Accepted Answer

NPV = $87,000 + 7,500 - 92,500 = $2,000

Question 7

Racing Motors has a market value of $210,000.PJ Racing has 20,000 shares of stock outstanding at a price per share of $40.PJ Racing is acquiring Racing Motors in an exchange for 5,625 shares of PJ Racing stock.The merger is expected to create $30,000 of synergy.The post-merger value of the firm will be ____ and the post-merger price per share will be ____.
A)$815,000;$40.75
B)$815,000;$31.80
C)$1,040,000;$40.75
D)$1,040,000;$52.00
E)$1,040,000;$40.59

Accepted Answer

Number of post-merger shares = 20,000 + 5,625 = 25,625 sharesV_AB = (20,000 × $40)+ $210,000 + $30,000 = $1,040,000Post-merger share value = $1,040,000/25,625 = $40.59

Question 8

Explain a golden parachute and justify why a firm's shareholders may be willing to agree to such an arrangement.

Accepted Answer

The answer of Explain a golden parachute and justify why...

Question 9

Global Network has a market value of $898,000.AG Communications has 50,000 shares of stock outstanding at a price per share of $60.AG is acquiring Global in an exchange for 15,000 shares of AG stock.The merger is expected to create $220,000 of synergy.What will be the post-merger value of the firm?
A)$3,218,000
B)$3,782,000
C)$4,118,000
D)$3,220,000
E)$3,898,000

Accepted Answer

V_AB = (50,000 × $60)+ $898,000 + 220,000 = $4,118,000

Question 10

New Tech has a market value of $384,000.Emerson Electrics has 40,000 shares of stock outstanding at a price per share of $39.Emerson Electrics is acquiring New Tech in exchange for 10,000 shares of Emerson Electrics stock.The merger is expected to create $28,000 of synergy.What is the merger net present value?
A)-$81,000
B)-$10,400
C)$22,400
D)$17,600
E)$46,400

Accepted Answer

Number of post-merger shares = 40,000 + 10,000 = 50,000 sharesV_AB = (40,000 × $39)+ $384,000 + $28,000 = $1,972,000Post-merger share value = $1,972,000/50,000 = $39.44Cost of acquisition = 10,000 × $39.44 = $394,400Merger NPV = $384,000 + 28,000 - 394,400 = $17,600

Question 11

Dog Treats has 6,500 shares of stock outstanding at a market price per share of $11.FIDO has 15,000 shares outstanding that sell for $18 a share.By merging,$9,600 of synergy can be created.What would be the post-merger value of the combined firm if FIDO acquires Dog Treats in a stock acquisition valued at $75,000?
A)$341,500
B)$276,100
C)$156,100
D)$266,500
E)$351,100

Accepted Answer

V_AB = (15,000 × $18)+ (6,500 × $11)+ $9,600 = $351,100

Quiz 21: Mergers and Acquisitions Web Only

JLM has 6,000 shares of stock outstanding at a market price per share of $27.Hi-Tek has 30,000 shares outstanding that sell for $50 a share.By merging,$35,000 of synergy can be created.Hi-Tek is acquiring JLM for $200,000 worth of Hi-Tek stock.What is the post-merger value per share?

Carlisle's Market has a market value of $429,000 while Food World's market value is $191,000.Carlisle's just acquired Food World for $200,000 cash.What is the net present value of the acquisition if the merger creates $28,000 of synergy from cost efficiencies?

Explain the pros and cons of a cash acquisition over a stock acquisition.

Firm A has a market value of $212,000 while Firm B's market value is $87,000.Firm A just acquired Firm B for $92,500 cash.What is the net present value of the acquisition if the merger creates $7,500 of synergy?

Explain a golden parachute and justify why a firm's shareholders may be willing to agree to such an arrangement.

Global Network has a market value of $898,000.AG Communications has 50,000 shares of stock outstanding at a price per share of $60.AG is acquiring Global in an exchange for 15,000 shares of AG stock.The merger is expected to create $220,000 of synergy.What will be the post-merger value of the firm?