Question 1

By Staggering the election of board members, a ﬁrm makes an acquisition of that ﬁrm more diﬃcult.

Accepted Answer

By staggering the election of board members, the firm ensures that a potential acquirer would have to wait for a longer period to gain control over the board, making the acquisition process more difficult. This is because only a portion of the board members would be up for election at any given time.

Question 2

Firm A can acquire ﬁrm B for $120,000 in cash or in shares of ﬁrm A stock. The synergy value is $36,000.  What is the value of the post-merger ﬁrm if the merger is an all cash deal?

Accepted Answer

The answer of Firm A can acquire ﬁrm B for...

Question 3

Suppose you have the following information concerning an acquiring ﬁrm (A) and a target ﬁrm (B). Neither ﬁrm has any debt. The incremental value of the acquisition is estimated to be $250,000.
Firm B is willing to be acquired for $540,000 worth of Firm A's stock.  What is the NPV of acquiring Firm B?

Accepted Answer

The answer of Suppose you have the following information concerning...

Question 4

It has been suggested that the reason why the stockholders in acquiring ﬁrms may not beneﬁt to
any signiﬁcant degree from an acquisition is because management may have priorities other than
the interest of the stockholders.

Accepted Answer

This statement suggests that the interests of management may not align with those of the stockholders, leading to potential lack of benefit for the stockholders in an acquisition.

Question 5

An argument against using an acquisition by tender offer as opposed to a merger is that a
signiﬁcant number of minority shareholders may hold out.

Accepted Answer

The answer of An argument against using an acquisition by...

Question 6

Downing's Boats has agreed to be acquired by Schooners, Inc. for $325,000 worth of Schooners stock. Downing's currently has 12,500 shares of stock outstanding at a price of $23.80 a share.
Schooners has 32,000 shares outstanding at a price of $46. The incremental value of the
Acquisition is $11,700. What is the merger premium per share?

Accepted Answer

The answer of Downing's Boats has agreed to be acquired...

Question 7

By lowering the percentage of shareholders which must approve the merger, a ﬁrm makes an
acquisition of that ﬁrm more diﬃcult.

Accepted Answer

By lowering the percentage of shareholders which must approve the merger, a firm actually makes an acquisition of that firm easier as it requires fewer shareholder votes for approval.

Question 8

The Lily Pad has 1,500 shares outstanding at a market price per share of $12. The Specialty Shop has 2,600 shares outstanding at a market price of $18 a share. Neither ﬁrm has any debt. The
Specialty Shop is acquiring The Lily Pad for $20,000 in cash. The incremental value of the
Acquisition is $3,100. What is the value of The Lily Pad to The Specialty Shop?

Accepted Answer

The value of The Lily Pad to The Specialty Shop is the cash paid ($20,000) plus the incremental value of the acquisition ($3,100), totaling $21,100.

Question 9

Neither acquiring ﬁrm A nor target ﬁrm B has any debt. The incremental value of the proposed acquisition is estimated to be $250,000. Firm B is willing to be acquired for $30 per share in cash.  What is the NPV for acquiring ﬁrm B?

Accepted Answer

The answer of Neither acquiring ﬁrm A nor target ﬁrm...

Question 10

Tuesday's and Thursday's are all-equity ﬁrms. Tuesday's has 5,600 shares outstanding at a market price of $28 a share. Thursday's has 4,500 shares outstanding at a price of $42 a share. Thursday's
Is acquiring Tuesday's. The incremental value of the acquisition is $4,200. What is the value of
Tuesday's to Thursday's?

Accepted Answer

To find the value of Tuesday's to Thursday's, we need to subtract the market value of Tuesday's ($28 per share * 5,600 shares = $156,800) from the incremental value of the acquisition ($4,200), and then add the market value of Tuesday's to get the total value of Tuesday's to Thursday's.

Total value of Tuesday's to Thursday's = ($4,200 - $156,800) + $156,800 = $4,200

Therefore, the value of Tuesday's to Thursday's is $161,000.

Question 11

Calipers, Inc. is acquiring Johnson Warehouse for $47,000 in cash. Calipers has 2,700 shares of stock outstanding at a market value of $32 a share. Johnson Warehouse has 3,200 shares of stock
Outstanding at a market price of $14 a share. Neither ﬁrm has any debt. The net present value of the
Acquisition is $1,800. What is the value of Caliper's after the acquisition?

Accepted Answer

To find the value of Caliper's after the acquisition, we need to add the cash paid for the acquisition to the market value of Caliper's stock and the market value of Johnson Warehouse's stock:

Cash paid for acquisition = $47,000
Market value of Caliper's stock = 2,700 shares x $32/share = $86,400
Market value of Johnson Warehouse's stock = 3,200 shares x $14/share = $44,800

Total value of Caliper's after the acquisition = $47,000 + $86,400 + $44,800 = $178,200

Since the net present value of the acquisition is $1,800, we need to subtract that from the total value:

Total value of Caliper's after the acquisition - Net present value of the acquisition = $178,200 - $1,800 = $176,400

Therefore, the value of Caliper's after the acquisition is $86,000 (Option B).

Question 12

Firm S is planning on merging with Firm T. Firm S will pay Firm T's stockholders the current value of their stock in shares of Firm S. Firm S currently has 5,100 shares of stock outstanding at a market
Price of $15 a share. Firm T has 2,600 shares outstanding at a price of $19 a share. What is the
Value of the merged ﬁrm?

Accepted Answer

The value of the merged firm is the sum of the values of the two firms. The value of Firm S is 5,100 shares * $15 per share = $76,500. The value of Firm T is 2,600 shares * $19 per share = $49,400. The total value of the merged firm is $76,500 + $49,400 = $125,900.

Question 13

Capitol Stores and The Back Corner are all-equity ﬁrms. Capitol Stores has 1,750 shares outstanding at a market price of $18.40 a share. The Back Corner has 2,100 shares outstanding at a price of $34
A share. The Back Corner is acquiring Capitol Stores for $34,900 in cash. What is the merger
Premium per share?

Accepted Answer

To find the merger premium per share, we need to find the difference between the price paid per share by The Back Corner and the market price of Capitol Stores.

Price paid by The Back Corner for Capitol Stores = $34,900
Number of shares outstanding for Capitol Stores = 1,750
Price per share for Capitol Stores = $34,900 / 1,750 = $19.94

Market price per share of Capitol Stores = $18.40

Merger premium per share = Price per share paid by The Back Corner - Market price per share of Capitol Stores
Merger premium per share = $19.94 - $18.40 = $1.54

Therefore, the correct answer is C. $1.54.

Question 14

Alto and Solo are all-equity ﬁrms. Alto has 2,400 shares outstanding at a market price of $24 a share. Solo has 4,000 shares outstanding at a price of $17 a share. Solo is acquiring Alto for
$63,000 in cash. The incremental value of the acquisition is $5,500. What is the net present value
Of acquiring Alto to Solo?

Accepted Answer

The answer of Alto and Solo are all-equity ﬁrms. Alto...

Question 15

Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26. Sally's has 3,000 shares outstanding at a market price of $41 a share. Neither ﬁrm has any debt. Sally's is
Acquiring Jennifer's for $58,000 in cash. What is the merger premium per share?

Accepted Answer

First, we need to calculate the total market value of Jennifer's Boutique and Sally's before the merger:

Market value of Jennifer's Boutique = 2,100 shares x $26 per share = $54,600
Market value of Sally's = 3,000 shares x $41 per share = $123,000

The total market value of the two firms is $177,600 ($54,600 + $123,000).

Next, we need to calculate the price that Sally's is paying for Jennifer's Boutique:

Price paid by Sally's = $58,000

To calculate the merger premium per share, we need to determine the value of Jennifer's Boutique based on the price paid by Sally's:

Value of Jennifer's Boutique = Price paid by Sally's - Market value of Jennifer's Boutique
Value of Jennifer's Boutique = $58,000 - $54,600
Value of Jennifer's Boutique = $3,400

Now we can calculate the merger premium per share:

Merger premium per share = (Value of Jennifer's Boutique / Number of shares outstanding) - Market price per share
Merger premium per share = ($3,400 / 2,100) - $26
Merger premium per share = $1.62

Therefore, the correct answer is B, $1.62.

Question 16

Firm X is planning on merging with Firm Y. Firm X will pay Firm Y's stockholders the current value of their stock in shares of Firm X. Firm X currently has 3,900 shares of stock outstanding at a market
Price of $40 a share. Firm Y has 2,200 shares outstanding at a price of $17 a share. The after-
Merger earnings will be $7,800. What will the earnings per share be after the merger?

Accepted Answer

The answer of Firm X is planning on merging with...

Question 17

The Sandwich Shoppe has 1,600 shares outstanding at a market price per share of $11. Joe's Slop Hut has 1,800 shares outstanding at a market price of $14 a share. Neither ﬁrm has any debt. Joe's
Slop Hut is acquiring The Sandwich Shoppe. The incremental value of the acquisition is $1,600.
What is the value of The Sandwich Shoppe to Joe's Slop Hut?

Accepted Answer

The value of The Sandwich Shoppe to Joe's Slop Hut is the market value of The Sandwich Shoppe plus the incremental value of the acquisition. The market value of The Sandwich Shoppe is 1,600 shares * $11/share = $17,600. Adding the incremental value of $1,600 gives $17,600 + $1,600 = $19,200.

Question 18

Firm A is acquiring Firm B for $59,000 in cash. Firm A has 4,600 shares of stock outstanding at a market value of $19 a share. Firm B has 2,500 shares of stock outstanding at a market price of $21
A share. Neither ﬁrm has any debt. The net present value of the acquisition is $1,800. What is the
Value of Firm A after the acquisition?

Accepted Answer

The answer of Firm A is acquiring Firm B for...

Question 19

It has been suggested that the reason why the stockholders in acquiring ﬁrms may not beneﬁt to
any signiﬁcant degree from an acquisition is because the price paid for the target ﬁrm might equal
that ﬁrm's total value.

Accepted Answer

If the price paid for the target firm equals that firm's total value, there may be no significant benefit for the acquiring firm's stockholders.

Question 20

All else equal, the cost of an acquisition will likely be higher if the acquirer uses its own common
stock rather than cash to complete the purchase.

Accepted Answer

When an acquirer uses its own common stock, it gives away ownership of a portion of the company to the target company's shareholders. This increases the number of outstanding shares, which can dilute the value of existing shares and lead to a drop in the acquirer's stock price. As a result, target companies often demand a higher premium from acquirers that use their own stock as opposed to those that pay in cash.

Quiz 23: Enterprise Risk Management

By Staggering the election of board members, a ﬁrm makes an acquisition of that ﬁrm more diﬃcult.

Firm A can acquire ﬁrm B for $120,000 in cash or in shares of ﬁrm A stock. The synergy value is $36,000. What is the value of the post-merger ﬁrm if the merger is an all cash deal?

It has been suggested that the reason why the stockholders in acquiring ﬁrms may not beneﬁt to any signiﬁcant degree from an acquisition is because management may have priorities other than the interest of the stockholders.

An argument against using an acquisition by tender offer as opposed to a merger is that a signiﬁcant number of minority shareholders may hold out.

By lowering the percentage of shareholders which must approve the merger, a ﬁrm makes an acquisition of that ﬁrm more diﬃcult.

Neither acquiring ﬁrm A nor target ﬁrm B has any debt. The incremental value of the proposed acquisition is estimated to be $250,000. Firm B is willing to be acquired for $30 per share in cash. What is the NPV for acquiring ﬁrm B?

Jennifer's Boutique has 2,100 shares outstanding at a market price per share of $26. Sally's has 3,000 shares outstanding at a market price of $41 a share. Neither ﬁrm has any debt. Sally's is Acquiring Jennifer's for $58,000 in cash. What is the merger premium per share?

It has been suggested that the reason why the stockholders in acquiring ﬁrms may not beneﬁt to any signiﬁcant degree from an acquisition is because the price paid for the target ﬁrm might equal that ﬁrm's total value.

All else equal, the cost of an acquisition will likely be higher if the acquirer uses its own common stock rather than cash to complete the purchase.