Question

Today, Company "A" purchases 100% of Company B Common Stock and assumes all of the outstanding Company B Liabilities. Immediately Before the acquisition, Company B had reported the following Balance Sheet Totals: Total Assets = $9,200 Total Liabilities = $3,800 Total Equity = $5,400 Immediately after the Acquisition, Company A had to consolidate Company B into its financial books. This involves the Purchase Price Allocation problem. Here is the information you have to work with: Company A recognized $4,400 Goodwill in the acquisition of Company B. The Liabilities of Company B were re-valued to current fair value at $4,700 The Acquired Plant Property and Equipment was valued at $7,800 fair market value Acquired Research and Development as well as Patents were valued at $1,200 Compute the Purchase Price that Company A paid for Company B in this acquisition. Do not include the dollar sign. There is no partial credit for this problem. 4 points QUESTION 23 Today, Company "A" purchases 100% of Company B Common Stock and assumes all of the outstanding Company B Liabilities. Immediately Before the acquisition, Company B had reported the following Balance Sheet Totals and supplemental information: Physical (non-financial)Liabilities = $42,680,000 Face Value of Outstanding Bond Liabilities =$640,000,000 Time to Maturity for Outstanding Bonds = 18 years Annual Coupon Rate for Bonds with annual coupon payments = 5% Cost of Debt for Company B = 4% Cost of Debt for Company A = 6.5% Required: Compute the Value of the Bonds that would be shown on the Balance Sheet of Company B immediately before the acquisition. Do not use the dollar sign and round to the nearest whole dollar. 4 points QUESTION 24 Today, Company "A" purchases 100% of Company B Common Stock and assumes all of the outstanding Company B Liabilities. Immediately Before the acquisition, Company B had reported the following Balance Sheet Totals and supplemental information: Physical (non-financial)Liabilities = $42,680,000 Face Value of Outstanding Bond Liabilities =$640,000,000 Time to Maturity for Outstanding Bonds = 18 years Annual Coupon Rate for Bonds with annual coupon payments = 5% Cost of Debt for Company B = 4% Cost of Debt for Company A = 6.5% Required: Compute the Value of the Company B Bonds that would flow into the Company A Balance Sheet immediately after the acquisition. Do not use the dollar sign and round to the nearest whole dollar. 4 points QUESTION 25 Today, Company "A" purchases 100% of Company B Common Stock and assumes all of the outstanding Company B Liabilities. Immediately Before the acquisition, Company B had reported the following Balance Sheet Totals and supplemental information: Physical (non-financial)Liabilities = $42,680,000 Face Value of Outstanding Bond Liabilities =$640,000,000 Time to Maturity for Outstanding Bonds = 18 years Annual Coupon Rate for Bonds with annual coupon payments = 5% Cost of Debt for Company B = 4% Cost of Debt for Company A = 6.5% Required: Assume the Bonds were revalued at $600,000,000 by Company B. Compute the total value of the Company B liabilities that would flow into the Company A Balance Sheet immediately after the acquisition.

Answer 1

Answer Valuation of Equity after Revaluation: Assets Goodwill 4,400 7,800 Plant Property and Equipment Research and Development as well as Patents 1,200 13,400 Total Assets after Revaluation Less: Liabilites Current fair Value of Liabilites Value of Equity of Company B 4,700 8,700 The Purchae Price that Company A paid for Acquisition of Company B is $8,700. Summary: 1. For Valuation of Equity price after Revaluation is to be cosnider. 2. Value of Equity is calculated by deducting total Liabilites from Total Assets. Answer to Question 23 Face Value of Outstanding Bond Time to Maturity Annual Coupon Rate for Bonds Cost of Debt for Company B 640,000,000 18 Yrs 5% 4% Annual Coupon Payable 32,000,000 Present Value of Annual Coupon Payable @4% = 3200000 x [(1-(1+04)^-189/.04] = 405,097,503 Present Value of Face Value of Bond @ 4% 640000000/(1+.04) 18 315,921,997 Value of the Bond that would flow into the company company B Balance Sheet before acquisition = Present Value of Annual Coupon Payable + Present Value of Bond = 721,019,500 Note: 1. Value of the Bond is calculated by summing the Present Value of Future Cash Outflow at the discounted Rate of Company B Cost of Debt. Answer to Question 24 Face Value of Outstanding Bond Time to Maturity Annual Coupon Rate for Bonds Cost of Debt for Company A 640,000,000 18 Yrs 5% 6.5%

Annual Coupon Payable 32,000,000 Present Value of Annual Coupon Payable @ 4% = 3200000 x [(1-(1+.065)-18)/.065] 333,838,924 Present Value of Face Value of Bond @ 6.5% 640000000/(1+.065) 18 206,009,398 Value of the Bond that would flow into the company company A Balance Sheet before acquisition = Present Value of Annual Coupon Payable + Present Value of Bond 539,848,322 Note: 1. Value of the Bond is calculated by summing the Present Value of Future Cash Outflow at the discounted Rate of Company A Cost of Debt. Answer to Question 25 Cost of Debt for Company B 4% Revalued Value of Bonds by Company B Annual Coupon Payable Present Value of Annual Coupon Payable @ 4% = 600,000,000 32,000,000 3200000 x [(1-(1+.04)^-18)/.04] 405,097,503 194,902,497 194902497 X (1+0.04)18 394,836,723 Present Value of Face Value of Bond Future Value of Bond of Company B @ 4% Cost of Debt for Company A Present Value of Annual Coupon Payable @ 4% = 3200000 x [(1-(1+.065)^-18)/.065] 333,838,924 Present Value of Face Value of Bond @ 6.5% 333838924 / (1+.065)-18 1,074,593 Value of the Bond that would flow into the company company A Balance Sheet before acquisition = Present Value of Annual Coupon Payable + Present Value of Bond 334,913,517 Note: 1. It is assumed that revaluation of Bond B is done after considering the present value of future cash Outflow and Bond from the figures calculated above Bonds will be redeemed at Discount. 2. Reedemable value of Bond is calculated by calculating the Future value of Bond at the discount Rate of Company B cost of Debt and Discounted to calcuated the Present Value at the rate of Company A cost of Debt to Calculate the cost of Debt.