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Nonamiya [84]
3 years ago
10

Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecast

s of Fly-By-Night show that the purchase would increase its annual aftertax cash flow by $370,000 indefinitely. The current market value of Flash-in-the-Pan is $9 million. The current market value of Fly-By-Night is $23 million. The appropriate discount rate for the incremental cash flows is 8 percent. Fly-By-Night is trying to decide whether it should offer 35 percent of its stock or $13 million in cash to Flash-in-the-Pan.
a. What is the synergy from the merger?
b. What is the value of Flash-in-the-Pan to Fly-By-Night?
c. What is the cost to Fly-By-Night of each alternative?
d. What is the NPV to Fly-By-Night of each alternative?
e. Which alternative should Fly-By-Night use?
Business
1 answer:
neonofarm [45]3 years ago
6 0

Answer:

Explanation:

a. The synergy will be the present value of the incremental cash flows of the proposed purchase.      

Since the cash flows are perpetual, this amount is $370,000/.08      

=$370000/.08        

=$4,625,000

b        

The value of Flash-in-the-Pan to Fly-by-Night is the synergy plus the current market value of Flash-in-the-Pan      

= $4625000+9000000          

=$13625000

c

stocked acquired = percentage age of ownership x value of merged firm

0.35 (13625000 + 23000000)

= $12818750

d

NPVs = Value of Flash-in-the-Pan to Fly-by-Night – (equivalent) cash offer =synergy – cost:    

NPV of cash alternative = 13625000 – 13000000 = $625,000

NPV of stock alternative = 13625000 - 12818750 = $806,250

e

Use the Stock Alternative, Because NPV is better

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Answer:

In equilibrium, total output by the two firms will be option e= 300.  

Q = q_{1} + q_{2}

Q = 100 + 200

Q = 300

Explanation:

Data Given:

Market Demand Curve = P = 1660-4Q

where, P = price and Q = total industry output

Each firm's marginal cost = $60 per unit of output

So, we know that Q =  q_{1} + q_{2}

where q_{} being the individual firm output.

Solution:

P = 1660-4Q

P = 1660- 4(q_{1} + q_{2})

P = 1660 - 4q_{1} - 4q_{2}

Including the marginal cost of firm 1 and multiplying the whole equation by q_{1}

Let's suppose new equation is X

X =  1660q_{1} - 4q_{1} ^{2} - 4q_{1}q_{2} - 60q_{1}

Taking the derivative w.r.t to q_{1}, we will get:

X^{'} = 1660 - 8q_{1} - 4q_{2} - 60 = 0

Making rearrangements into the equation:

8q_{1} + q_{2} = 1660 - 60

8q_{1} + q_{2} = 1600

Dividing the whole equation by 4

2q_{1} +q_{2} = 400

Solving for q_{1}

2q_{1} = 400 - q_{2}

q_{1} = 200 - 0.5 q_{2}  

Including the marginal cost of firm 1 and multiplying the whole equation by q_{2}

P = 1660 - 4q_{1} - 4q_{2}

Let's suppose new equation is Y

Y =  1660q_{2} - 4q_{1}q_{2} -4q_{2} ^{2} - 60q_{2}

Pugging in the value of q_{1}

Y =  1660q_{2} - 4q_{2}(200 - 0.5 q_{2}) -4q_{2} ^{2} - 60q_{2}

Y =  1660q_{2} - 800q_{2} +2q_{2} ^{2} -4q_{2} ^{2} - 60q_{2}

Y =  1600q_{2} - 800q_{2} -2q_{2} ^{2}

Taking the derivative w.r.t q_{2}

Y^{'} = 1600 - 800 - 4q_{2} = 0

Solving for q_{2}

4q_{2} = 800

q_{2} = 200

q_{1} = 200 - 0.5 q_{2}

Plugging in the value of q_{2} to get the value of q_{1}

q_{1} = 200 - 0.5 (200)

q_{1} = 200 - 100

q_{1} = 100

Q = q_{1} + q_{2}

Q = 100 + 200

Q = 300

Hence, in equilibrium, total output by the two firms will be option

e= 300.

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Answer:

See below

Explanation:

With regards to the above, the entry to record of March 30 would be;

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= $108,000

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= $780,000 × 18%

= $140,400

Additional paid in capital = $140,400 - $108,000 = $32,400

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Answer and Explanation:

The identification of the following terms as an accounting principle, assumption or constraint is

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2. Measurement  = Principle

3 Cost-benefit   = Constraint

4 Revenue recognition  = Principle

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Answer:

The correct answer is (A)

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