Homework Answers
| Nadia | Shaan | |
| Price - Earning ratio | 8 | 6 |
| Shares outstanding | 500,000 | 220000 |
| Earnings | 1500000 | 440000 |
| EPS (Earning per share) | 3 | 2 |
| Market Price (PE*EPS) per share | 24 | 12 |
a. Alternative 2 via share exchange ratio of 1:4 is both cost effective and a very good deal for Nadia Inc. Since Nadia Inc. has to part away just $24 per share to acquire 4 shares of Shaan, equivalent to $48, which is very good deal for Nadia Inc.
Instead, if Alternative 1 was being choosen, Nadia Inc. has to give $15 per share value to Shaan Inc. which is currently at a value of $12 only or at $3 premium.
b. If Share Exchange ratio of 1:2 is selected then Every Shares of Nadia Inc. with a value of $24 (1* $24) would be equivalent to two shares of Shaan Inc. with a total value of $24 (2* $12) and that would be indifferent between Nadia's cash or stock offer for their stock.
In short, the ratio shows the Nadia Inc. is at a better position then Shaan inc.Hence, Acquisition is preferred by Nadia on all share deal.
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Suppose you work as a strategic financial manager at Nadia Inc., a large telecommunications firm which...
Suppose you work as a strategic financial manager at Nadia Inc., a large telecommunications firm which...
Suppose you work as a strategic financial manager at Nadia Inc., a large telecommunications firm which is considering making an offer to purchase Shaan Inc. a smaller network company. You have collected the following information for this important financial decision: Nadia Shaan Price-earnings ratio 8 6 Shares outstanding 500,000 220,000 Earnings $1,500,000 $440,000 Securities analysts expect the earnings and dividends (currently $1 per share) of Shaan to grow at a constant rate of 4% each year. Nadia management believes that...
Suppose you work as a strategic financial manager at Nadia Inc., a large telecommunications firm which...
Suppose you work as a strategic financial manager at Nadia Inc., a large telecommunications firm which is considering making an offer to purchase Shaan Inc. a smaller network company. You have collected the following information for this important financial decision: Nadia Shaan Price-earnings ratio 8 6 Shares outstanding 500,000 220,000 Earnings $1,500,000 $440,000 Securities analysts expect the earnings and dividends (currently $1 per share) of Shaan to grow at a constant rate of 4% each year. Nadia management believes that...
Alternative 1 Acquire Shaan by paying $15 cash per share for Shaan’s stock. Alternative 2 Acquire...
Alternative 1
Acquire Shaan by paying $15 cash per share for Shaan’s
stock.
Alternative 2
Acquire Shaan by share exchange ratio of l:4 (i.e. one share of
Nadia for 4 shares of Shaan).
Which of the above two alternatives Should Nadia choose? Support
your answer with calculations.
At what exchange ratio of Nadia's shares to Shaan's shares would
the shareholders of Shaan be indifferent between Nadia's cash or
stock offer for their stock? Show calculations to support your
answer.
Suppose...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that...
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. Shares outstanding Price per share Firm B 5,800 $ 45 Firm T 1,300 $ 16 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,400. Firm T can be acquired for $18 per share in cash or by exchange of stock wherein B offers one of its share...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...
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 6,200 1,400 Price per share $ 48 $ 18 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,600. Firm T can be acquired for $20 per share in cash or by exchange of stock wherein B offers one of...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...
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 6,000 1,200 Price per share $ 47 $ 17 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,500. Firm T can be acquired for $19 per share in cash or by exchange of stock wherein B offers one of its share...
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...
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 6,000
1,200 Price per share $ 47 $ 17 Firm B has estimated that the value
of the synergistic benefits from acquiring Firm T is $9,500. Firm T
can be acquired for $19 per share in cash or by exchange of stock
wherein B offers one of its share...
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...
Question 2 Mergers and Acquisitions Dynamo Ltd is considering making an offer to purchase Stedrup Ltd....
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The financial statements for Castile Products, Inc., are given below Castile Products, Inc. Balance Sheet December...
The financial statements for Castile Products, Inc., are given below Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash $ 21,000 260,000 360,000 8,000 Accounts receivable, net Merchandise inventory Prepaid expenses Total current assets 649,000 820,000 Property and equipment, net Total assets $1,469,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $300,000 350,000 Bonds payable, 11% Total liabilities Stockholders' equity: Common stock, $5 par value Retained earnings 650,000 $110,000 709,000 Total stockholders' equity 819,000 Total liabilities and equity $1,469,000...
Suppose you work as a strategic financial manager at Nadia Inc., a large telecommunications firm which is considering making an offer to purchase Shaan Inc. a smaller network company. You have collected the following information for this important financial decision: Nadia Shaan Price-earnings ratio 8 6 Shares outstanding 500,000 220,000 Earnings $1,500,000 $440,000 Securities analysts expect the earnings and dividends (currently $1 per share) of Shaan to grow at a constant rate of 4% each year. Nadia management believes that...
Suppose you work as a strategic financial manager at Nadia Inc., a large telecommunications firm which is considering making an offer to purchase Shaan Inc. a smaller network company. You have collected the following information for this important financial decision: Nadia Shaan Price-earnings ratio 8 6 Shares outstanding 500,000 220,000 Earnings $1,500,000 $440,000 Securities analysts expect the earnings and dividends (currently $1 per share) of Shaan to grow at a constant rate of 4% each year. Nadia management believes that...
Alternative 1
Acquire Shaan by paying $15 cash per share for Shaan’s
stock.
Alternative 2
Acquire Shaan by share exchange ratio of l:4 (i.e. one share of
Nadia for 4 shares of Shaan).
Which of the above two alternatives Should Nadia choose? Support
your answer with calculations.
At what exchange ratio of Nadia's shares to Shaan's shares would
the shareholders of Shaan be indifferent between Nadia's cash or
stock offer for their stock? Show calculations to support your
answer.
Suppose...
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. Shares outstanding Price per share Firm B 5,800 $ 45 Firm T 1,300 $ 16 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,400. Firm T can be acquired for $18 per share in cash or by exchange of stock wherein B offers one of its share...
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 6,000
1,200 Price per share $ 47 $ 17 Firm B has estimated that the value
of the synergistic benefits from acquiring Firm T is $9,500. Firm T
can be acquired for $19 per share in cash or by exchange of stock
wherein B offers one of its share...
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...
Question 2 Mergers and Acquisitions Dynamo Ltd is considering making an offer to purchase Stedrup Ltd. Dynamie's CFO has collected the following information: Dynamo Ltd 18 Stedrup Ltd 12 1,000,000 $1,200,000 $600,000 Price-earnings Ratio Shares outstanding After-tax Earnings Dividends 4,000,000 $4,000,000 $800,000 Dynamo also knows that securities analysts expect the earnings and dividends of Stedrup to grow at a constant rate of 3.5 percent each year. Dynamo Ltd's management believes that the acquisition of Stedrup will provide the firm with...
The financial statements for Castile Products, Inc., are given below Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash $ 21,000 260,000 360,000 8,000 Accounts receivable, net Merchandise inventory Prepaid expenses Total current assets 649,000 820,000 Property and equipment, net Total assets $1,469,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $300,000 350,000 Bonds payable, 11% Total liabilities Stockholders' equity: Common stock, $5 par value Retained earnings 650,000 $110,000 709,000 Total stockholders' equity 819,000 Total liabilities and equity $1,469,000...
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