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Ch23+Answers+to+assigned+problems+v6 - CHAPTER 23 MERGERS...

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CHAPTER 23 MERGERS AND ACQUISITIONS Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. The final answer for each problem is found without rounding during any step in the problem. 4. Since the acquisition is funded by long-term debt, the post-merger balance sheet will have long-term debt equal to the original long-term debt of Meat’s balance sheet plus the new long-term debt issue, so: Post-merger long-term debt = $1,900 + 17,000 = $18,900 Goodwill will be created since the acquisition price is greater than the book value. The goodwill amount is equal to the purchase price minus the market value of assets. Generally, the market value of current assets is equal to the book value, so: Goodwill created = $17,000 – ($12,000 market value FA) – ($3,400 market value CA) = $1,600 Current liabilities and equity will remain the same as the pre-merger balance sheet of the acquiring firm. Current assets will be the sum of the two firm’s pre-merger balance sheet accounts, and the fixed assets will be the sum of the pre-merger fixed assets of the acquirer and the market value of fixed assets of the target firm.
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