Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 28, Problem 12P
Summary Introduction
To derive the share exchange ratio to be offered, given that LI and TI have entered into a stock swap agreement, whereby LI will pay a 40% premium over TI’s pre-merger price. The pre-merger price per share of TI was $40 and the pre-merger price per share of LI was $50.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The NFF Corporation has announced plans to acquire LE Corporation. NFF is trading for $50 per share, and LE is
trading for $57 per share, implying a pre-merger value of LE of approximately $8.4 billion. If the projected synergies
are $2.89 billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive
NPV?
The NFF Corp. has announced plans to acquirer LE Corp. NFF is trading for $35 per share and LE is trading for $25 per share, implying a pre-merger value of LE of approximately $4 billion. If the projected synergies are $1 billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV?
The NFF Corporation has announced plans to acquire LE Corporation. NFF is trading for $ 25 per share, and LE is trading for $ 29 per share, implying a pre-merger value of LE of approximately $ 7.3 billion. If the projected synergies are $ 1.27 billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV?
Chapter 28 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 28.1 - Prob. 1CCCh. 28.1 - Prob. 2CCCh. 28.2 - On average, what happens to the target share price...Ch. 28.2 - Prob. 2CCCh. 28.3 - What are the reasons most often cited for a...Ch. 28.3 - Prob. 2CCCh. 28.4 - Prob. 1CCCh. 28.4 - What do risk arbitrageurs do?Ch. 28.5 - Prob. 1CCCh. 28.5 - Prob. 2CC
Ch. 28.6 - Prob. 1CCCh. 28.6 - Prob. 2CCCh. 28 - What are the two primary mechanisms under which...Ch. 28 - Prob. 2PCh. 28 - What are some reasons why a horizontal merger...Ch. 28 - Prob. 4PCh. 28 - Prob. 5PCh. 28 - Prob. 6PCh. 28 - How do the carryforward and carryback provisions...Ch. 28 - Diversification is good for shareholders. So why...Ch. 28 - Your company has earnings per share of 4. It has 1...Ch. 28 - If companies in the same industry as TargetCo...Ch. 28 - Prob. 11PCh. 28 - Prob. 12PCh. 28 - Prob. 13PCh. 28 - Lets reconsider part (b) of Problem 99. The actual...Ch. 28 - ABC has 1 million shares outstanding, each of...Ch. 28 - Prob. 16PCh. 28 - How does a toehold help overcome the free rider...Ch. 28 - Prob. 18P
Knowledge Booster
Similar questions
- KT corporation has announced plans to acquire MJ corporation. KT is trading for $45 per share and MJ is trading for $25 per share, with a premerger value for MJ of $3 billion dollars. If the projected synergies from the merger are $750 million, what is the maximum exchange ratio that KT could offer in a stock swap and still generate a positive NPV? It is closest to: Answer choices: A) 0.75 B) 3.30 C) 2.25 D) 1.30arrow_forwardCompany AB has a market value of GH¢50 million. Company CD has a market value of GH¢200 million. YY has determined that if it combines resources with AB, will be worth GH¢25 million today. On this basis CD makes an offer to buy AB. If CD makes a cash offer of GH¢65 million for all the shares of AB, what is the cost of this purchase to CD? What is the net present value under the share offer?arrow_forwardNataro, Inc is planning on merging with Celestia Corp. Nataro, Inc with will pay shareholders the current value of their stock using shares of Nataro as the form of payment. Nataro has 5600 shares outstanding at a market price of $27.25 per share. Celestia Corp has 8,000 shares outstanding at a market price of $5.75 per share. The expected synergy created by the merger is $4200. What is the value of the merged firm (excludes cost of acquisition)? A. 205600 B. 201400 C. 159600 D. 54400 E. 68750arrow_forward
- Suppose that the price of the target firm 43 is after the announcement. The acquirer's share price is 74 after the announcement, and it is 82 on the deal completion date. The acquirer offers to exchange 0.679 shares of the acquirer for each share of the target at the completion of the deal. Compute the return for a merger arbitrageur assuming that the deal is successful. The answer should be given in decimal form with three decimals. For example, write 0.105 instead of 10.5 or 10.5 % when the correct answer is 10.5 %.arrow_forwardXYZ has earnings per share of $2. It has 10 million shares outstanding and is trading at $20 per share. XYZ is thinking of buying ABC, which has earnings per share of $1.25, 4 million shares outstanding, and a price per share of $15. XYZ will pay for ABC by issuing new shares. There are no expected synergies from the transaction. A) If XYZ offers an exchange ratio such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy ABC, then the price per share of the combined corporation after the merger will be closest to: B) If XYZ offers cash at a price such that, at current pre-announcement share prices for both firms, the offer represents a 20% premium to buy ABC, then the price per share of the combined corporation after the merger will be closest to:arrow_forwardCompany AB has a market value of GH¢50 million. Company CD has a market value of GH¢200 million. YY has determined that if it combines resources with AB, will be worth GH¢25 million today. On this basis, CD makes an offer to buy AB. If CD makes a cash offer of GH¢65 million for all the shares of AB, what is the cost of this purchase to CD? Suppose CD has issued 100 of its shares to its shareholders and is considering issuing 30 shares to the shareholders of AB, what is the cost of the share offer?arrow_forward
- Suppose that the price of the target firm before the announcement is 42 and after the announcement it is 47. The price of the acquirer before the announcement is 75 and after it is 75. The acquirer offers to exchange 0.707 shares of the acquirer for each share of the target at the completion of the deal. Compute the deal spread after the announcement. The answer should be given in decimal form with three decimals. For example, write 0.105 instead of 10.5 or 10.5 % when the correct answer is 10.5 %.arrow_forwardhe NFF Corporation has announced plans to acquire LE Corporation. NFF is trading for $ 64 per share, and LE is trading for $ 13 per share, implying a pre-merger value of LE of approximately $ 6.7 billion. If the projected synergies are $ 2.07 billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV? Question content area bottom Part 1 The maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV is enter your response here. (Round to three decimal places.)arrow_forwardCompany AB has a market value of GH¢50 million. Company CD has a market value of GH¢200 million. YY has determined that if it combines resources with AB, will be worth GH¢25 million today. On this basis, CD makes an offer to buy AB. If CD makes a cash offer of GH¢65 million for all the shares of AB, what is the cost of this purchase to CD? What is the net present value of the transaction under the cash offer to CD?arrow_forward
- Conglomerate Inc. is trading at $80/share, and is about to announce its intent to acquire Tiny Corp. who is an all-equity firm with 20 million shares trading at $5/share. The projected synergies from the acquisition are $15 million. What is the maximum exchange ratio Conglomerate Inc. could offer in a stock swap and still have the deal be positive NPV? 18.4 1.43 11.24 1.66arrow_forwardGobi Desserts is bidding to take over Universal Puddings. Gobi has 3,500 shares outstanding, selling at $55 per share. Universal has 2,500 shares outstanding, selling at $22.50 a share. Gobi estimates the economic gain from the merger to be $22,500. Required: If Universal can be acquired for $25 a share, what is the NPV of the merger to Gobi? What will Gobi sell for when the market learns that it plans to acquire Universal for $25 a share? (Round your answer to 2 decimal places.) What will Universal sell for? Assume that the market expects the merger to go through without any further bidding. What are the percentage gains to the shareholders of each firm? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Now suppose that the merger takes place through an exchange of stock. On the basis of the premerger prices of the firms, Gobi sells for $55, so instead of paying $25 cash, Gobi issues 0.45 of its shares for every Universal share acquired. What will be…arrow_forwardBoth of Firm A and Firm B are 100 equity firms. You estimate that the incremental value of the acquisition is $100,000. Firm B has indicated that it will agree to a sale if the price is $150,000, payable in cash or stock. Firm B is worth $100 as a stand-alone, so this is the minimum value that we could assign to Firm B. Calculate the value of firm A after merger. Firm A Firm B Price per share $2 $1 Number of shares 50,000 100,0000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education