Consider this scenario:A firm acquires a strategically related target; there were no other bidding firms. Under what conditions, if any, can the firm that acquired this target expect to earn an economic profit from doing so?
The first condition is the creation
of economic value added (EVA) due to the acquisitions of the target
firm. It measures the wealth creation to the firm that is over and
above the required cost of capital of the investment done to
acquire the target. If the wealth is positive, then economic profit
is created due to the acquisitions. The second conditions is the
creation of economy of scope due to the acquisition of the target
firm. As a part of the acquisition, now different product lines are
being produced under the same overhead cost. It results into the
synergy effect and average total cost of production, comes down. It
causes the firm after the acquisition, to earn positive economic
profit. The third condition is the resources complementing each
other that creates economy of scale in the firm. It brings
increasing return to scale and average total cost also comes down
with the increased level of production. It makes the firm to earn
revenue that is over and above the total cost. It creates positive
economic profit.
Besides, the improvement in learning curve, innovation and risk
management expertise as a Part of the balanced scorecard after the
acquisition if achieved, also helps the firm to achieve the
economic profit.
Consider this scenario:A firm acquires a strategically related target; there were no other bidding firms. Under...
Consider the following scenario: A firm acquires a strategically related target after successfully fending off four other bidding firms. Under what conditions, if any, can the firm that acquired this target expect to earn an economic profit from doing so?
Consider the following premerger information about a bidding firm (Firm A) and a target firm (Firm B). Assume that both firms have no debt outstanding. Firm A Firm B Share price 50 20 Number of shares 10,000 3,000 Firm A has estimated that the value of the synergistic benefits from acquiring Firm B is $50,000. If Firm B is acquired for $30 per share in cash, what is the merger premium in this merger? If Firm B is acquired for...
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 5,600 2,200 Price per share $ 45 $ 19 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,300. Firm T can be acquired for $21 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 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 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 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 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...
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 4,800 1,800 Price per share $ 47 $ 20 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,100. a. If Firm T is willing to be acquired for $22 per share in cash, what is the NPV of the merger? (Do...
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...
You are the manager of a firm that competes against four other firms by bidding for government contracts. While you believe your product is better than the competition, the government purchasing agent views the products as identical and purchases from the firm offering the best price. Total government demand is Q = 900 -5P and all five firms produce at a constant marginal cost of $40. For security reasons, the government has imposed restrictions that permit a maximum of five...