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by: Margot King


Margot King

GPA 3.82

Jaime Zender

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About this Document

Jaime Zender
Class Notes
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This 2 page Class Notes was uploaded by Margot King on Friday October 30, 2015. The Class Notes belongs to MBAC 6060 at University of Colorado at Boulder taught by Jaime Zender in Fall. Since its upload, it has received 22 views. For similar materials see /class/232195/mbac-6060-university-of-colorado-at-boulder in OTHER at University of Colorado at Boulder.




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Date Created: 10/30/15
CHAPTER 29 MERGERS AND ACQUISITIONS Solutions to 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 answerfor each problem isfound without rounding during any step in the problem 4 Since the acquisition is funded by longterm debt the postmerger balance sheet will have longterm debt equal to the original longterm debt of Jurion s balance sheet plus the new longterm debt issue so Postmerger longterm debt 1900 17000 18900 Goodwill will be created since the acquisition price is greater than the market value The goodwill amount is equal to the purchase price minus the market value of assets Generally the market value of current assets is equal to the book value so Goodwill created 17000 712000 market value FA 7 3400 market value CA 1600 Current liabilities and equity will remain the same as the premerger balance sheet of the acquiring rm Current assets will be the sum of the two rm s premerger balance sheet accounts and the xed assets will be the sum of the premerger xed assets of the acquirer and the market value of xed assets of the target rm The postmerger balance sheet will be Jurion Co post merger Current assets 13400 Current liabilities 3100 Fixed assets 26000 Longterm debt 18900 Goodwill 1600 Equity 19000 Total 41000 41000 In the pooling method all accounts of both companies are added together to total the accounts in the new company so the postmerger balance sheet will be Silver Enterprises post merger Current assets 3700 Current liabilities 2700 Other assets 1150 Longterm debt 900 Net xed assets 6700 Equity 7950 Total 11550 11550 11 The cash offer is better for target rm shareholders since they receive 27 per share In the share offer the target rm s shareholders will receive Equity offer value 3524 1440 per share The shareholders of the target rm would prefer the cash offer The exchange ratio which would make the target rm shareholders indifferent between the two offers is the cash offer price divided by the new share price of the rm under the cash offer scenario so Exchange ratio 273420 7895 a The synergy will be the present value of the incremental cash ows of the proposed purchase Since the cash ows are perpetual the synergy value is Synergy value 600000 08 Synergy value 7500000 The value of FlashinthePan to FlybyNight is the synergy plus the current market value of FlashinthePan which is Value 7500000 20000000 Value 27500000 The value of the cash option is the amount of cash paid or 25 million The value of the stock 1 39 39 39 is the l of r in the merged company times the value of the merged company so Stock acquisition value 2527500000 35000000 Stock acquisition value 15625000 The NPV is the value of the acquisition minus the cost so the NPV of each alternative is NW of cash offer 27500000 7 25000000 NPV of cash offer 2500000 NW of stock offer 27500000 7 15625000 NPV of stock offer 11875000 The acquirer should make the stock offer since its NPV is greater


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