Autumn 2005- TBS 907- Tutorial 5 - Mergers and Acquisitions

Autumn 2005- TBS 907- Tutorial 5 - Mergers and Acquisitions...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
TBS 907- AUTUMN 2005 TUTORIAL 5 MERGER AND ACQUISTIONS Question 1 YAM Ltd (Y) has been evaluating the acquisition of Xavier Ltd (X). The annual expected cash flows of Y and X are respectively, $1.16 million per annum in perpetuity and $640,000 per annum in perpetuity. These cash flows are expected to be unaffected by the takeover. The systematic risk (beta) of Y is 0.75 and of X is 1.0. The risk free interest rate is 10 percent and the expected excess return on the market portfolio is 6 percent. Calculate the price at which X represents a zero NPV investment. Is it likely that Y’s shareholders will benefit from the takeover? Assume the information in the previous paragraph, except that the post takeover cash flow of the two companies is expected to be $1.95 million per annum in perpetuity. Is the acquisition likely to e of benefit to Y’s shareholders? Question 2 Crocodile Ltd. is considering the acquisition of Shark Finance. The values of the two companies as separate entities are $10 million and $5 million, respectively. Crocodile estimates that by combining
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/10/2009 for the course FIN FIN taught by Professor Dr. during the Spring '09 term at Baptist College of Health Sciences.

Page1 / 2

Autumn 2005- TBS 907- Tutorial 5 - Mergers and Acquisitions...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online