ZuoTi.Pro
Question

Firm B is planning an acquisition of Firm A. The stand-alone value of Firm A is...

Firm B is planning an acquisition of Firm A. The stand-alone value of Firm A is $560 million, and synergies are estimated to be $85 million. What is the maximum acceptable purchase price Firm B should be willing to pay, and why?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

THE STAND ALONE VALUE OF FIRM A = 560 MILLION

BUT DUE TO MERGER SYNERGIES WILL BE CREATED WORTH = 85 MILLION, THAT IS, BENEFITS BE CREATED BY MERGER

SO TOTAL VALUE OF FIRM A = 560 + 85 = 645 MILLION

SO MAXIMUM 645 MILLION CAN BE PAID BY FIRM B. TILL THAT PRICE, THE FIRM B WILL NOT HAVE ANY LOSS FROM MERGER. ANYTHING LESS THAN THAT PAID WILL MAKE NPV POSITIVE FOR MERGER FOR FIRM B

Answer : 645 million (Thumbs up please)

0 0
Add a comment
Know the answer?
Add Answer to:
Firm B is planning an acquisition of Firm A. The stand-alone value of Firm A is...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Which of the following M&A transaction equations is correct?

    14 Which of the following M&A transaction equations is correct? Value created = Stand-alone value + Net synergies - Transaction costs Value created = Hard synergies + Soft synergies -Transaction costs Value created = Stand-alone value + Net synergies - Consideration (price paid)  Value created = Consideration (price paid) + Net synergies - Transaction costs15 What should a company do if it wants to reduce the number of shares outstanding? Pay cash dividends Invest in more projects Issue more debt Repurchase shares

  • As a financial manager of Firm A, you have been asked to analyze a potential acquisition...

    As a financial manager of Firm A, you have been asked to analyze a potential acquisition of Firm B. You have the following data: Firm A Firm B Number of Shares 1,000,000 800,000 Stock Price $40 per share $25 per share Assume that the current stock price accurately reflects the intrinsic value of the shares of both firms. You estimate that the merger will provide cost savings of $1,000,000 per year forever. Your firm (Firm A) can pay either $28,000,000...

  • 5. Which of the following statements regarding Mergers and Acquisition processes is false? a) Buyer and...

    5. Which of the following statements regarding Mergers and Acquisition processes is false? a) Buyer and seller have diverging interests b) The agreed price is established by a third party who acts as an intermediary between buyer and seller c) The due diligence process enables the potential buyer to evaluate the target company d) All transaction terms and conditions are reflected in legal documentation 6. Which of the following statements regarding Mergers and Acquisition transaction structures are false? a) The...

  • Question 1 – M&A Blended Offer Sprint is planning on acquiring Nextel. The situation for both...

    Question 1 – M&A Blended Offer Sprint is planning on acquiring Nextel. The situation for both firms before the transaction is as outlined below: Sprint before the transaction: 1,400 million shares outstanding at a market price of $25 per share Market value of debt is $5,000 million No excess cash Nextel before the transaction: 1,030 million shares outstanding at a market price of $30 per share Market value of debt is $5,000 million No excess cash Transaction details: Sprint will...

  • 7. As the CEO of the Laurel Group of Hotels, you wish to offer to purchase...

    7. As the CEO of the Laurel Group of Hotels, you wish to offer to purchase Hardy Resorts, Inc. You have estimated the value of HHI at USD 250 million and the present value of expected synergies arising from the combination at USD 20 million. What is the maximum price you are willing to offer in a competitive sale process? a) USD 250 million b) USD 270 million c) USD 230 million d) USD 290 million

  • Firm C has a market value of $500 million and the stock is trading at $25...

    Firm C has a market value of $500 million and the stock is trading at $25 per share. Firm D has a market value of $100 million and the stock is trading at $50 each. Firm C is contemplating acquiring firm D. Firm C’s CFO estimates that the combined firm will be worth $750 million and firm D can be acquired at an acquisition premium of $95 million. If for the outstanding shares of firm D, firm C is willing...

  • all information is given? Question 6 Byder plc is considering a possible acquisition of Targetty plc....

    all information is given? Question 6 Byder plc is considering a possible acquisition of Targetty plc. You have been asked to evaluate the merits of the proposed merger. Here are the data on the two companies before the acquisition. Targetty Byder Shares outstanding 1,000m 5,000m P/E ratio 10 2 Expected EPS 0.5 3 Byder has valued the synergies from the merger as being £2,500m. (a) If Byder wishes to finance the acquisition with shares in the merged firm, what is...

  • mergers and acquisition

    Gryphon Corp. is analyzing the possible acquisition of Hawk Co. Gryphon Corp. has 3 million sharesoutstanding, selling at $50 per share. Hawk Co. has 1 million shares outstanding, selling at $35 ashare. The forecasts of Gryphon Corp. show that the purchase would increase its annual after-taxfree cash flow by $2 million next year and the Free Cash Flows will grow at a rate of 2% per yearindefinitely. The appropriate discount rate for the incremental cash flows is 7.50 percent.a. What...

  • Terminal Value In Class Problem Firm B is considering the acquisition of Firm Y. Firm B has estimated the cash flow...

    Terminal Value In Class Problem Firm B is considering the acquisition of Firm Y. Firm B has estimated the cash flows, cost of capital, and growth rate for firm Y shown below. Using these estimates, estimate the current value of firm Y using the terminal value technique. Year 1 Year 2 Year 3 Year 4 $1,450 CFF $900 $1,115 $1,240 WACC = 11%, g = 2% (assumed constant following year 4).

  • Problem 12-21 Firm Valuation Happy Times, Inc., wants to expand its party stores into the Southeast....

    Problem 12-21 Firm Valuation Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 6 percent. The company’s market capitalization is $440 million, and the required return on equity is 11 percent. Joe’s currently has debt outstanding with...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT