Showing 1 to 10 of 478 Questions
  • Respond to the following comments.a. “Our cost of debt is too darn high, but our banks won’t reduce interest rates as long as we’re stuck in this volatile widget-trading business. We’ve got to acquire other companies with safer income streams.”b. “Merge with Fledgling Electronics? No way! Their P/E’s too high. That deal wo

  • Explain how you would estimate the gain and cost of a merger financed by stock. What stock price should be used to calculate the cost?

  • Sometimes the stock price of a possible target company rises in anticipation of a merger bid. Explain how this complicates the bidder’s evaluation of the target company.

  • Suppose you obtain special information—information unavailable to investors— indicating that Backwoods Chemical’s stock price is 40 percent undervalued. Is that a reason to launch a takeover bid for Backwoods? Explain carefully.

  • As treasurer of Leisure Products, Inc., you are investigating the possible acquisition of Plastitoys. You have the following basic data:You estimate that investors currently expect a steady growth of about 6 percent in Plastitoys’ earnings and dividends. Under new management this growth rate would be increased to 8 percent per year, wit

  • The Muck and Slurry merger has fallen through (see Section 33.2). But World Enterprises is determined to report earnings per share of $2.67. It therefore acquires the Wheelrim and Axle Company. You are given the following facts:Once again there are no gains from merging. In exchange for Wheelrim and Axle shares,World Enterprises issues j

  • Explain the distinction between a tax-free and a taxable merger. Are there circumstances in which you would expect buyer and seller to agree to a taxable merger?

  • Look again at Table 33.3. Suppose that B Corporation’s fixed assets are reexamined and found to be worth $1.2 million instead of $.9 million. How would this affect the AB Corporation’s balance sheet under purchase accounting? How would the value of AB Corporation change? Would your answer depend on whether the merger istaxable?

  • What was the common theme in Boone Pickens’s attempts to take over Cities Service, Gulf Oil, and Phillips Petroleum? Did his efforts create value for these companies’ shareholders? How? Was economic efficiency enhanced?

  • In July 1994 the top managers of Sovereign Bancorp were at loggerheads:48 • Jay Sidhu, president and chief executive officer of the $5 billion bank, wants to be an acquirer. Only by buying up other banks, he argues, will Sovereign gain the financial clout it needs to survive in the increasingly competitive industry. • But Fred Jaindl,