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ans-odd-problems-ch29

# ans-odd-problems-ch29 - CHAPTER 29 MERGERS AND ACQUISITIONS...

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CHAPTER 29 MERGERS AND ACQUISITIONS Solutions to Odd-Numbered Questions and Problems NOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem. Basic 1. For the merger to make economic sense, the acquirer must feel the acquisition will increase value by at least the amount of the premium over the market value, so: Minimum economic value = \$740,000,000 – 650,000,000 = \$90,000,000 3. In the pooling method, all accounts of both companies are added together to total the accounts in the new company, so the post-merger balance sheet will be: Jurion Co., post-merger Current assets \$13,400 Current liabilities \$ 4,700 Fixed assets 19,600 Long-term debt 2,800 Equity 25,500 Total \$33,000 \$33,000 5. In the pooling method, all accounts of both companies are added together to total the accounts in the new company, so the post-merger balance sheet will be: Silver Enterprises, post-merger Current assets \$ 3,700 Current liabilities \$ 2,700 Other assets 1,150 Long-term debt 900 Net fixed assets 6,700 Equity 7,950 Total \$11,550 \$11,550 7. a. The cash cost is the amount of cash offered, so the cash cost is \$94 million. To calculate the cost of the stock offer, we first need to calculate the value of the target to the acquirer. The value of the target firm to the acquiring firm will be the market value of the target plus the PV of the incremental cash flows generated by the target firm. The cash flows are a perpetuity, so V * = \$78,000,000 + \$3,100,000/.12 = \$103,833,333

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The cost of the stock offer is the percentage of the acquiring firm given up times the sum of the market value of the acquiring firm and the value of the target firm to the acquiring firm. So, the equity cost will be: Equity cost = .40(\$135M + 103,833,333) = \$95,533,333
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