FINA 395 Chapter 30: Ross6eChap30sm.doc

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bronzespider550

25 Jan 2015

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30. 1 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 = ,000,000 585,000,000 = ,000,000. Since neither company has any debt, using the pooling method, the asset value of the combined firm must equal the value of the equity, so: Assets from x = 26,000() = ,000 (book value) Assets from y = 20,000() = ,000 (market value) The purchase price of firm y is the number of shares outstanding times the sum of the current stock price per share plus the premium per share, so: Purchase price of y = 20,000( + 5) = ,000. And the total asset of the combined company will be: Total assets xy = total equity xy = ,000 + 380,000 + 100,000 = ,026,000.

Related Questions

Consider the following premerger information about Firm X and Firm Y:

	Firm X		Firm Y
Total earnings	$	89,000	$	19,000
Shares outstanding		46,000		11,000
Pre-share values:
Market	$	46	$	17
Book	$	15	$	6

Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $4 per share, and that neither firm has any debt before or after the merger.

a.	Assuming the pooling of interests method is used, what is the equity of the combined firm?

Equity value

b.	List the assets of the combined firm assuming the purchase accounting method is used.


Assets from X	$
Assets from Y
Goodwill

Total Assets XY	$

pinkshark188

Consider the following premerger information about Firm X and Firm Y:

	Firm X		Firm Y
Total earnings	$	95,000	$	22,000
Shares outstanding		52,000		17,000
Pre-share values:
Market	$	52	$	21
Book	$	15	$	10

Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $6 per share, and that neither firm has any debt before or after the merger.

a.	Assuming the pooling of interests method is used, what is the equity of the combined firm?

Equity value

b.	List the assets of the combined firm assuming the purchase accounting method is used.


Assets from X	$
Assets from Y
Goodwill

Total Assets XY	$

bluewildebeest701

Consider the following premerger information about Firm X and Firm Y:

	Firm X		Firm Y
Total earnings	$	89,000	$	19,000
Shares outstanding		46,000		11,000
Per-share values:
Market	$	46	$	17
Book	$	15	$	6

Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $4 per share, and that neither firm has any debt before or after the merger.

List the assets of the combined firm assuming the purchase accounting method is used.


Assets from X	$
Assets from Y
Goodwill

Total Assets XY	$

FINA 395 Chapter 30: Ross6eChap30sm.doc

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