RSM333 ASSIGNMENT#2 SOLUTION

RSM333 ASSIGNMENT#2 SOLUTION - UNIVERSITY OF TORONTO Joseph...

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

View Full Document Right Arrow Icon
UNIVERSITY OF TORONTO Joseph L. Rotman School of Management RSM333 PROBLEM SET #2 SOLUTIONS 1. (a) Before the acquisition V A = $10 25 m = $250 m and V B = $8 5 m = $40 m . Consider the three possible values of the synergies: $250 m ± $50 m ( cash out ) + $50 m ( value of assets purchased + value of synergy ) = $250 m . AB still has 25 million shares, and so the share price is $250 m= 25 m = $10 , so is unchanged. There million (premium ± V B = $50 m ± $40 m to the shareholders of B. $250 m ± $50 m +$45 m = $245 m . AB still has 25 million shares, and so the share price is $245 m= 25 m = $9 : 80 . The shareholders of A have experienced a loss of $ : 20 25 m = $5 m . Again, the shareholders of B gained $10 million, but only $5 million of synergies was created, so the shareholders of A took a $5 million hit. shares, and so the price/share is $255 m= 25 m = $10 : 20 , and so the shareholders of A have gained $ : 20 25 m = $5 m of wealth, as a result of the transaction. The shareholders of B gained $10 million. (b) Consider the three possible values of the synergies: $250 m + $40 m + $10 m = $300 m . The shares should trade at $300 m= 30 m = $10 . Hence there of $10 million as before. ii) In this case, AB is only worth $295 million, but there are 30 million shares out-
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 04/23/2011 for the course RSM 333 taught by Professor Sabrinabutti during the Spring '11 term at University of Toronto- Toronto.

Page1 / 5

RSM333 ASSIGNMENT#2 SOLUTION - UNIVERSITY OF TORONTO Joseph...

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