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katrin [286]
3 years ago
11

Acquiring Company is considering the acquisition of Target Company in a stock for stock transaction in which Target Company woul

d receive $50.00 for each share of its common stock. The Acquiring Company does not expect any change in its price/earnings multiple after the merger.
Acquiring Co. Target Co.

Earnings available for common stock $150,000 $30,000

Number of shares of common stock outstanding $60,000 $20,000

Market price per share $60.00 $40.00

Using the information provided above on these two firms and showing your work, calculate the following:

1) What is the share exchange ratio?

2) How many new shares will be issued by Acquiring Company?

3) What is the post-merger EPS of the combined company?

4) What is the post-merger share price of the combined company?

5) If the purchase is using 100% cash and all the cash is borrowed at an annual rate of 8%, what is post-merger EPS of the combined company, assuming the tax rate is 40%?
Business
1 answer:
ad-work [718]3 years ago
6 0

Answer:

1) 0.8333

2) 16,666

3) 2.33

4) 56.40

5) 2.2

Explanation:

Share Exchange Ratio = Price per share for Target Company / Market price per share for Acquiring Company  = $50 / $60  =  0.8333

New shares issued by Acquiring Company = Shares of Target Company x Exchange ratio (20,000 x 0.8333) = 16,666

Total shares outstanding of the combined companies = 60,000 + 16,666  = 76,666

Post-merger EPS of the combined companies = ($150,000 + $30,000)/ 76,666 = $2.35

Pre-merger EPS of Acquiring Company = $150,000 / 60,000 = $2.50

Post-merger share price = $2.35 x 24 (pre-merger P/E = $60.00/$2.50) = $56.40

Purchase price = 50 * 20,000 = 1,000,000

Interest expense = 1,000,000 * 8% = 80,000

Post-merger earnings = 150,000 + 30,000 – 80,000 * (1-0.4) = 132,000

Therefore, Post-merger EPS of the combined companies = 132,000/60,000 = 2.2

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The amount of discount that has to be included in Francis's income is 0.

<h3>How to solve for the discount amount</h3>

The amount of the discount - sales price

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This is the discount when it is sold to employees

Next we solve for the gross profit as

sales price x gross profit rate

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Given the amounts that we have here we have to conclude that the amount to be included in the account is 0

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Pronghorn Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures we
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Answer:

The interest rate for capitalization purposes will be of 11%

Explanation:

The company will average all the debt oustanding during the year

1,050,550  x 13%   =     136,571.5

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a debt of 6,962,550 dollars generates 766,083.5 dollars of interest:

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Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors ha
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Answer:

The indifference point is 10,000 units.

Explanation:

Giving the following information:

Two vendors have presented proposals. The fixed costs are $ 50,000 for proposal A and $ 70,000 for proposal B. The variable cost is $ 12.00 for A and $ 10.00 for B. The revenue generated by each unit is $ 20.00.

Proposal A= 50,000 + 12*x

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70,000 + 10x= 50,000 + 12x

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The indifference point is 10,000 units.

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3 years ago
If $1,000,000 of 8% bonds are issued at 102 3/4, the amount of cash received from the sale is ______________.
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Answer:

The amount of cash received from the sale is $1,027,500

Explanation:

In this scenario we first have to know the number of bonds issued and then multiply it by the bond price which is given to us in the question.

The bonds have a total face value of 1,000,000 and one bond is issued at 102.75 which means that the face value of a single bond is 100.

Now in order to find the number of bonds issued we will divide the total face value by the face value of a single bond.

1,000,000/100=10,000.

10,000 bonds were issued at $ 102.75 now in order to calculate the total cash received we will multiply the number of bonds with the issue price.

10,000*102.75=1,027,500

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