Assume now that JP Morgan announces that it plans to acquire Ameritrade in a cash transaction....

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Assume now that JP Morgan announces that it plans to acquire Ameritrade in a cash transaction. The stock prices of the two firms had the following reaction to the announcement: JP Morgan Ameritrade $65 $ 40 Stock Price before Stock Price after $63 Suppose that JP Morgan has 330 shares outstanding, while Ameritrade has 260 shares outstanding. Estimate the market's assessment of the value of synergy in this transaction on the announcement day. And assume that the acquisition was motivated by the potential cost savings from consolidating operations. If the cost of capital for both firms is 10% and the expected growth rate in the cost savings in perpetuity is 3%, estimate how much the costs savings would have to be next year to justify the synergy assessment mentioned earlier. (20 Marks) $45 Assume now that JP Morgan announces that it plans to acquire Ameritrade in a cash transaction. The stock prices of the two firms had the following reaction to the announcement: JP Morgan Ameritrade $65 $ 40 Stock Price before Stock Price after $63 Suppose that JP Morgan has 330 shares outstanding, while Ameritrade has 260 shares outstanding. Estimate the market's assessment of the value of synergy in this transaction on the announcement day. And assume that the acquisition was motivated by the potential cost savings from consolidating operations. If the cost of capital for both firms is 10% and the expected growth rate in the cost savings in perpetuity is 3%, estimate how much the costs savings would have to be next year to justify the synergy assessment mentioned earlier. (20 Marks) $45

Answer rating: 100% (QA)

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