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Unformatted text preview: d customer depositsb Prepaid expenses
Total current assets
$ 415,000 Taxes payable
Total current liabilities
First mortgagec Net plant 200,000 Second mortgagec Net equipment 350,000 Unsecured bonds Total fixed assets $ 965,000 Total $5,800,000 Total long-term debt
Common stock (60,000 shares)
Paid-in capital in excess of par
Total stockholders’ equity
Total aRepresents $2,700,000
$5,800,000 wages of $600 per employee earned within 90 days of filing bankruptcy for 200 of the firm’s employees.
cThe customer deposits not exceeding $900 each. first and second mortgages are on the firm’s total fixed assets. The trustee expects to liquidate the assets for $3.2 million—$2.5 million from
current assets and $700,000 from fixed assets. Required
a. Calculate (1) the ratio of exchange in market price and (2) the earnings per
share (EPS) and price/earnings (P/E) ratio for each company on the basis of
the data given in the table that accompanies discussion of the acquisition
b. Find the postmerger earnings per share (EPS) for Rome Industries, assuming
that it acquires Procras Corporation under the terms given.
c. Use the estimated postmerger price/earnings (P/E) ratio and your finding in
part b to find the postmerger share price.
d. Use your finding in part c to determine how much, if any, the total market
value of Rome Industries will change as a result of acquiring Procras Corporation.
e. Determine how much each claimant will receive if Procras Corporation is
liquidated under the terms given.
f. How much, if any, of its $1.9 million balance due from Procras Corporation
will Rome Industries recover as a result of liquidation of Procras? CHAPTER 17 Mergers, LBOs, Divestitures, and Business Failure 753 g. Compare your findings in parts d and f, and make a recommendation for
Rome Industries with regard to its best action—acquisition of Procras or the
liquidation of Procras.
h. Which alternative would the shareholders of Procras Corporation prefer?
Why? WEB EXERCISE
W Go to www.uscourts.gov/bankruptcycourts.html, the site of the U.S. Bankruptcy
Courts. Click on the link at the bottom for Library. Under Statistical Reports,
click on Federal Judicial Caseload Statistic and then on Judicial Business, a statistical report. Find the section on bankruptcy courts and answer the following
1. Summarize recent trends in number of bankruptcy cases filed and in
Chapter 7 filings.
2. Compare business and nonbusiness bankruptcy trends.
Go to www.moeb.uscourts.gov, the site for the Eastern District of Missouri
Bankruptcy Court. Click on Statistics, and then, under the pull-down menu for
Data tables, select Annual Filings.
3. Which year had the greatest number of filings in this district? What is the
4. Under which chapter were there the greatest number of filings? Remember to check the book’s Web site at
for additional resources, including additional Web exercises....
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