Question

Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.

Firm B & Firm T Shares outstanding 5,400 & 2,000. Price per share $ 44 & $ 18

Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,200.

a. If Firm T is willing to be acquired for $20 per share in cash, what is the NPV of the merger? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

b. What will the price per share of the merged firm be assuming the conditions in (a)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c. If Firm T is willing to be acquired for $20 per share in cash, what is the merger premium? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for every two of T 's shares, what will the price per share of the merged firm be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

e. What is the NPV of the merger assuming the conditions in (d)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

C w ENG 08:36 30-07-2020 99+ 27 Х FT250 . FS FT FU FV FW FX FY FZ GA GB NPV = CURRENT MARKET VALUE OF TARGET FIRM + SYNERGY - CASH OFFER VALUE OF TARGET FIRM (2000 X 18) + 9200 - (2000X 20) = 5200 NPV = 227 228 229 230 a 231 232 233 b 234 235 236 237 238 C 239 240 241 242 d PRICE AFTER MERGER NPV WILL BE ADDED TO ACQUIRING FIRM SHARE PRICE OF FIRM B = 44.96 (=((5400*44)+5200)/5400] [(NO OF SHARES OF FIRM BX PRICE) + NPV]/ NO OF SHARES OF FIRM RCB MERGER PREMIUM = MERGER PREMIUM = MERGER PREMIUM = CASH OFFER VALUE OF TARGET FIRM - CURRENT MARKET VALUE OF TARGET FIRM (2000 X 20) - (2000 X 18) 4000 243 244 245 + NO OF SHARES OFFERED BY FIRM B= 2000 X (1/2) = 1000 PRICE OF THE MERGED FIRM = VALUE OF MERGED FIRM/ NO OF SHARES AFTER MERGER ((5400 X 44) + (2000 X 18) + 9200 )/(5400 + 1000) 44.19 NPV = CURRENT MARKET VALUE OF TARGET FIRM + SYNERGY - (SH OFFERED IN MERGER X PRICE AFTER MERGER) (2000 X 18) + 9200 - (1000 X 44.19) = 1012.50 [NO INTERMEDIATE ROUNDING IS DONE] 246 e 247 248 249 250 NPV real cfat merger country allocation amorti LOAN OPTIONS SI ... +