Firm X and Firm Y are both 100% equity-financed. Firm X wants to
acquire Firm Y for $165,000 in the form of either cash or stock.
The synergy value of the deal is $25,000. You are given the
following additional information:
What is the NPV of acquiring Firm Y when stock financing is used?
Part a
Meger premium = purchase consideration paid - value of shares of the traget company
=165000-(9750×15)=18750
Premium per share of target company = 18750/9750=1.923
As a % of share price = 1.923/15=12.82%
Part b
NPV of merger= value of target company + synergy -merger premium
=(9750×15)+25000-18750=152500$
Part c
Price per after merger= (Vx +NPVm)/Nm
Where
Vx = value of x before merger = 20000×37.5=750000$
NPVm= NPV of merger =152500
Nm= number of shares after merger= 20000 since it is a cash deal
Price after merger = (750000+152500)/20000=45.125
Part d and e
In case if a stock deal we need a swap ratio but in question we are not given any ddetails of the same so we have to assume that swap ratio is calculated on the basis of share price of both the company
SR= price of Y/ price of X= 15/37.5=.40 which means company X will issue .4 of its shares to the shareholders of Y company for every shares held by the of the Y company.
So no. Of shares after merger (Nm)=20000 +.4×9750 =23900
NPV of merger = purchase consideration paid +synergy premium
= (no of X shares given to Y's shareholders ×price of x company shares) +25000-0
=((.4×9760)×37.5)+25000-0=171250$
Here premium will be zero because we have calculated the swap ratio on price basis
Let us check, premium=.4×9750×37.5 -15×9750=0 yes!
Price per share= (750000+171250)/23900= 38.55
Hence cash deal is better.
Firm X and Firm Y are both 100% equity-financed. Firm X wants to acquire Firm Y...
Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed. Firm A: Number of Shares - 10,000; Price per Share - $25.00 Firm B: Number of Shares - 10,000; Price per Share - $10.00 a) How many shares of A, at their current price, will be given to firm B's...
Use the following information to answer the question. Round your answers if necessary, to two decimal places. Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed. Firm A: Number of Shares = 10,000 ; Price per Share = $25.00 Firm B: Number of Shares = 10,000 ; Price per...
Smith enterprise can acquire Miller inc for $250000 in either cash or stock. Both companies are 100% equity financed. the synergy value of the acquisition for smith is $35000. Currently smith has 25000 shares outstanding which trade at $29 a share, whereas miller has 15000 shares outstanding that trade at 14 a share. How many shares would be given to Miller's shareholders in a stock financed deal and what would be the exchange ratio in a pure stock exchange merger?...
Use the following information to answer the questions. Round your answers if necessary, to two decimal places. Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed. Firm A: Number of Shares = 10,000 ; Price per Share = $25.00 Firm B: Number of Shares = 10,000 ; Price per...
Use the following information to answer the questions. Round your answers if necessary, to two decimal places. Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed. Firm A: Number of Shares = 10,000 ; Price per Share = $25.00 Firm B: Number of Shares = 10,000 ; Price per...
Use the following information to answer the questions. Round your answers if necessary, to two decimal places. Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed. Firm A: Number of Shares = 10,000 ; Price per Share - $25.00 Firm B: Number of Shares = 10,000; Price per Share...
Use the following information to answer the question. Round your answers if necessary, to two decimal places. Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed. Firm A: Number of Shares = 10,000 ; Price per Share = $25.00 Firm B: Number of Shares = 10,000 ; Price per...
Use the following information to answer the question. Round your answers if necessary, to two decimal places. Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed. Firm A: Number of Shares = 10,000 ; Price per Share = $25.00 Firm B: Number of Shares = 10,000 ; Price per...
Use the following information to answer the question. Round your answers if necessary, to two decimal places. Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed. Firm A: Number of Shares = 10,000 ; Price per Share = $25.00 Firm B: Number of Shares = 10,000 : Price per...
Use the following information to answer the question. Round your answers if necessary, to two decimal places. Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed. Firm A: Number of Shares = 10,000 ; Price per Share = $25.00 Firm B: Number of Shares = 10,000 ; Price per...