Question

a 63) Firm X has total earnings ofS49,000, a market value per share of S64, abook value share of $38, and has 25,000 shares outstanding. Firm Y has total earnings of $34,000, a market value per share of $21, a book value per share of $12, and has 22,000shares outstanding. Assame Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $2 per share. Also assume neither firm has any debe before or after the merger. What is the value of the total equity of the combined firm, XY, if the purchase method of accounting is used? ASI ,456,000 B) Sí ,427,000 OSI ,274,000 D) $1,316,000 ED) $1,412,000 6h_ ㈱ The balance sheet of Meat Co. reflects current assets of$6,000, net fixed assets of $8,400, current liabilities of $1,800, long-term debt of $1,100, and equity of $11,500 The balance sheet of Loaf Inc. shows current assets of $2,000, net fixed assets of $3,300, current liabilities of $900, long-term debt of $500, and equity of $3,900. Suppose the fair market value of Loafs fixed assets is $4,100 versus the $3,300 book pays $5,200 for Loaf and raises the needed funds through an issue of long-serm debe Assume the purchase Meat Co. will have total debt of A) $14,500; $15,400 B) $1,600, $11,500 ) $9,500; $11,500 D) $1,600; $15,400 E S10,200; $15,400 value shown. Meat method of accounting is used. The post-merger equity of balance sheet of and total 65) Prior to the merger, Firm A has $1,250 in total earnings with 750 shares outstanding at a 5 market price per share of $42. Firm B has $740 in total earnings with 220 shares outstanding at $18 per share. Assume Firm A acquires Firm B via an exchange of stock at a price of $20 for each share of B's stock. Both A and B have no debt outstanding What will the camings per share of Firm A be after the merger? A) $1.86 E $2.10 D) $1.95 $2.33 B) $2.02 岰Rural Markets and Flo's Flowers are allequity firms Rural Markets has 2.300 dares outstanding at a market price of $16.50 a share. Flo's Flowers has 5,000 shares outstanding at a price of S17 a share. Flo's Flowers is acquiring Rural Markets for 39,000 in cash. The incremental value of the acquisition is $1,800. What is the net present value of acquiring Rural Markets to Flo's Flowers? A) $750 C)-$1,050D) $1,800 -$250 B) $400 -13-

Answer 1

63. Option A ( $1,456,000 )

Assets from Firm X = 25,000 ( $38 ) = $950,000 (book value)

Assets from Firm Y = 22,000 ( $21 ) = $462,000 (Market value)

Goodwill = 22,000 ($21 + 2 ) - $462,000 = $44,000

Total equity of XY = Total assets of XY = $950,000 + $462,000 + $44,000 = $1,456,000

64. Option C ( $9500 ; $11500 )

Debt = $1800 + $1100 + $900 + $500 + $5200 = $9500

Equity = $11500

65. Option B ( $2.33 )

66. Option A ( $750)