Ch23+Answers+to+assigned+problems+v7 - CHAPTER 23 MERGERS...

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CHAPTER 23 MERGERS AND ACQUISITIONS . Basic 5. (LO2) 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 original long-term debt on Loaf’s balance sheet, plus the new long-term debt issue, so: Post-merger long-term debt = $3,600 + 1,800 + 18,000 = $23,400 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, plus the market value of the acquired company’s debt. Generally, the market value of current assets is equal to the book value, so: Goodwill = $18,000 – ($13,000 market value FA) – ($3,400 market value CA) + ($1,200 + 1,800) Goodwill = $4,600 Equity will remain the same as the pre-merger balance sheet of the acquiring firm. Current assets and debt accounts 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. The post-merger balance sheet will be: Meat Co., post-merger Current assets $11,400 Current liabilities $ 4,600 Fixed assets 36,000 Long-term debt 23,400 Goodwill 4,600 Equity 24,000 Total $52,000 $52,000 9. (LO1) a . The EPS of the combined company will be the sum of the earnings of both companies divided by
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This note was uploaded on 12/12/2010 for the course FNCE FNCE 3P93 taught by Professor Nd during the Fall '10 term at Brock University.

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Ch23+Answers+to+assigned+problems+v7 - CHAPTER 23 MERGERS...

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