Tut-11-sol - FINS5514 TUTORIAL COVERING WEEK 11 THE...

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FINS5514 TUTORIAL COVERING WEEK 11 – THE RESTRUCTURING DECISION I 1. Attempt the following questions from Ross, Westerfield and Jordan a. Chapter 25, Questions and Problems: 1, 9 Chapter 25, Question 1. Offered 745million pesos for a firm with an independent value of 680million pesos. If the merger makes economic sense, what is the minimum value of the synergistic benefits from the merger? 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 = 745M – 680M = 65M pesos Chapter 25, Question 9. Firm B Firm T Shares outstanding 1,500 900 Price per share $34 $24 Firm B calculates the synergistic benefits as $3000 a. If firm T is acquired for $30 per share of cash, what is the NPV of the merger? b. What will be the price per share of the merged firm be assuming the conditions is (a) c. In (a) what is the merger premium? d. Suppose Firm T is agreeable to an exchange of stock. If B offers three of its shares for every 5 of T’s shares, what will be the price per share of the merged firm? a. The NPV of the merger is the market value of the target firm, plus the value of the synergy, minus the acquisition costs, so:   B AB V cash V Cost Gain NPV     400 , 2 $ 30 900 000 , 3 24 900 NPV
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b. Since the NPV goes directly to stockholders, the share price of the merged firm will be the market value of the acquiring firm plus the NPV of the acquisition,
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Tut-11-sol - FINS5514 TUTORIAL COVERING WEEK 11 THE...

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