Mergers Acquisitions And Other Restructuring Activities 5th Edition Donald DePamphilis - Solutions

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How does your answer to exercise 5.2 change if the risk-free rate is 3 percent? 7 percent?
Compute the tangency portfolio weights assuming a risk-free asset yields 5 percent.
Here are some general questions and instructions to test your understanding of the mean standard deviation diagram.a . Draw a mean-standard deviation diagram to illustrate combinations of a risky asset and the risk-free asset.b. Extend this concept to a diagram of the risk- free asset and all
Graph a generalization of Exhibit 4.5 that includes portfolios with short positions in one of the two investments.
Assume that the covariances between the returns of Nike, Netscape, and GE are given in the matrix below:Nike Netscape GE Nike .001 0 .001 Netscape 0 .001 .003 GE .001 .003 .002 Compute the minimum variance portfolio of these three stocks.
The three-stock portfolio in Example 4,15(portfolio variance: .03) is combined with a risk- free investment. a . What is the variance and standard deviation of the return of the new portfolio if the percentage of wealth in the risk-free asset is 25%? What are the portfolio weights of the four
Assume that ABCO can eflectiveiy sell short some of its lines of business by entering into derivative contracts. If possible, find the minimum variance investment proportions for the four subsidiaries, assuming that the three economic .scenarios—poor, average, good—are equally likely.
Draw six mean-standard deviation diagrams, one for each of the six remaining pairs of subsidiaries in exercise 4. 1 5. Miirk the individual subsidiaries, the minimum variance combination, and ABCO's return variance for a 5()/3() percent combination.
For each of the six cases in exercise 4.14, ABCO wants to consider what would happen to the return variance of ABCO's $4 billion in stock if it revised the relative investment proportions in the two remaining subsidiaries. In particular, for each of the six possible sell-off scenarios, what
ABCO is considering selling off two of its four subsidiaries and reinvesting the proceeds in the remaining two subsidiaries, keeping the same relative investment proportions in the surviving two. Assuming that the three economic scenarios are equally likely, compute the return variance of the $4
Assuming that the three economic scenarios are equally likely, compute the covariances and the correlation matrix for the four ABCO subsidiaries. Show that an alternative covariance formula, cvn'(/~|. /s) = E{''\'~2) ~ E(i~^)E(r2), generates the same covariances.
ABCO's head of risk management now warns of focusing on expected returns to the exclusion of risk measures such as variance. ABCO decides to measure return variance. a . For each ABCO subsidiary, compute the return variance with the standard formula var(r) = E[(r- n-].(i) The three economic
Assume in exercise 4.9 that ABCO decides to borrow $8 billion at 5 percent interest to triple its current investment in each of its four lines of businesses. Assume this new investment has the same per dollar return outcomes as the old investment.a. Answer parts a and h of exercise 4.9 given the
Assuming that the three economic outcomes ( 1)have an equal likelihood of occurring and (2) that the good economy is twice as likely to take place as the other two:a. Calculate individual expected returns for each subsidiary.h. Calculate implicit portfolio weights for each subsidiary and an
Show that the return of the minimum variance portfolio in Example 4.20—75 percent Westinghouse/CBS and 25 percent Westinghouse/CBS's put option—has the same covariance with Westinghouse/CBS's stock return as it does with the put option. Show that no other portfolio of the two stocks has this
Sara's portfoho consists of $10,000 in face value of the bonds described in exercise 4.6 and an $8,000 bank CD that earns 3.5 percent per year for the first year and 3.0 percent the second year. Calculate a . h. and c as in exercise 4.6.
Sara decides to buy a 6 percent. 10-year straightcoupon bond for $100. which pays annual coupons of $6 at the end of each year. At the end of the first year, the bond is trading at $1 15. At the end of the second year, the bond trades at $100. a . What is Sara's return over the first year?h. What
John invests $10,000 m IBM stock with a $3 annual dividend selling at $100 per share, and$15,000 in real estate partnership shares with $6 annual rental income at $25 per share. The following year, IBM stock is trading at $104 per share while the real estate shares trade at $23.50.Calculate John s
If the ratio of the return variances of stock A to stock B is denoted by k, find the portfolio weights for the two stocks that generate a riskless portfolio if the returns of the two stocks are {a) perfectly negatively correlated or (h) perfectly positively correlated.
Compute the expected return and the variance of the return of the stock of Gamma Corporation.Gamma stock has a return of:24 percent with probability 1/4 8 percent with probability 1/8 4 percent with probability 1/2 — 16 percent with probability 1/8.
Derive a formula for the weights of the minimum variance portfolio of two stocks using the following steps:a. Compute the variance of a portfolio with weights A and 1 - x on stocks 1 and 2, respectively. Show that you get:\'ar(Rp) = .v'crj -I- ( I - x)'a] + 2.v(l - .vjpcTicr, Take the derivative
Prove that £[(/• - /' )-J = £(/•") - i'' using the following steps:a. Show the E[(f - r)-] = E(i~- - 2n~ + r^)h. Show that the expression in part a is equal to;£(;-) - 2E{iT) + rc. Show that the expression in part h is equal to:£(/-) - 2r- + r- Then add.
When investment bankers bring a new firm to market, do you think they have conflicting incentives? What might these be and what are their causes?
Suppose your firm wants to issue a security with a guaranteed fixed payment, but which receives an additional benefit when the firm's stock price increases. Describe how such a security can be designed, and name existing securities that have this characteristic.
Suppose a firm wants to make a $75 million initial public offering of stock. Estimate the transaction costs associated with the issue.
Accurately pricing a new issue is quite costly.Explain why underwriters desire a reputation for pricing new issues as accurately as possible. Describe the actions they take to ensure accuracy.
The William Wrigley Jr. Company is the world's largest maker of chewing gum. The CEO is William Wrigley, Jr., the son of the founder. Wrigley has two classes of shares: common and class B stock. In 1995. there were 91.2 million shares of common stock outstanding, entitled to one vote per
A deferred coupon bond of Centaurcor pays its first coupon 5.5 years from today. The annual coupon of 16 percent is paid semiannually on a 30/360 basis. The bond is currently trading for par. This straight-coupon bond matures in 10 years. What is its yield to maturity? Hint: Guess a yield and
A 5 percent corporate bond maturing November 14, 2020 (originally a 25-year bond at issue), has a yield to maturity of 6 percent for the settlement date. June 9, 2001. What is the Hat price, full price, and accrued interest of the bond on June 9. 2001?
On August 16, 2000, the Treasury issues a 10 percent bond maturing on May 15, 203 1 Assume that the first bond coupon is paid on May 15, 2001. Prior to issue on August 1, 2000.a Treasury yield to maturity of 8.2 percent was quoted for this bond. What price was being contracted on August 1 , 2000?
XYZ Corporation takes out a $1 million loan that semiannually pays six-month LIBOR + 50 bp on March 4, 1999. Assume that LIBOR is at 9 percent on March 4, 1999, 8.75 percent on September 4, 1999. and 9.125 percent on March 4, 2000. What are the lirst three interest payments on the loan? When are
How does your answer to Exercise 2A.3 change if the yield to maturity is computed on August 1, 1998?
What is the conventional yield to maturity compounded semiannually for the bond in exercise 2A.1 if it is trading for $100, matures on August 15, 2010, and settles on August 15, 1998?Provide an answer for both the actual/actual and the 30/360 day-count methods.
Refer to the bond in exercise 2A.1.What is the accrued interest for settlement of a trade on August 1, 1998. with each of the four day-count methods. For parts a and h. assume that the coupon payment date is August 15, 1998.
Consider a straight-coupon bond (or banic loan) with semiannual interest payments at an X percent annualized rate. Per $100 of face value, what is the semiannual interest payment if the day count is based on the following methods?a. Actual/actualb. 30/360c. Actual/365 if the coupon payment date is
Assume that a homeowner takes on a 30-year,$100,000 floating-rate mortgage with monthly payments. Assume that the floating rate is 7.0 percent at the initiation of the mortgage, 7.125 percent is the reset rate at the end of the first month, and 7.25 percent is the reset rate at the end of the
The diagram in the next column shows default rates of rated bonds.What conclusions can you draw from the diagram?
An article in The Economist (Sept. 25, 1993, p. 93)said, in part:Neither fish nor fowl, convertible bonds, which give investors an option to convert into equities, have been gaining popularity in America. There were $103 billion of them outstanding at the end of August, up from $52 billion in 1990.
On October 31, 1994, the Wall Street Joiinial wrote:Once one of the raciest and most prohtable areas of investment banking, the Eurobond maricet has become boring and, even worse, not very profitable. Though the volume of new issues this year in the market which comprises bonds underwritten outside
Critics of ratings agencies argue that because the firm pays rating agencies to rate the firm's debt, the rating agencies have the wrong incentives. What do you think of this argument? Can you think of ways to assess its validity?
Why do you think the largest banks in the world are in Japan and Germany, not the United States? Do you expect this to change in the future?
Smaller firms tend to raise most of their outside capital from private sources, mainly banks. As firms become larger, they obtain greater proportions of their outside capital needs from the public markets. Explain why.
The Securities Exchange Act of 19.34 made insider trading illegal. What are the costs and benefits of prohibiting insider trading?
Competitive underwritings are cheaper than negotiated ones, but almost no firms use the former. Can you give some reasons for this?
In a rights offering witli a fixed price for exercising the right, does it matter what the exercise price is? Do shareholders care? Explain.
In many European countries such as the United Kingdom and Switzerland, rights issues are much more common than the public, underwritten offers that firms in the United States chiefly use. Can you think of some reasons for this?
1–1. Discuss why mergers and acquisitions occur.
1–2. What are the advantages and disadvantages of holding companies in making M&As?
1–4. What is the role of the investment banker in the M&A process?
1–5. Describe how arbitrage typically takes place in a takeover of a publicly traded company.
1–6. Why is potential synergy often overestimated by acquirers in evaluating a target company?
1–7. What are the major differences between the merger waves of the 1980s and 1990s?
1–8. In your judgment, what are the motivations for two M&As currently in the news?
1–9. What are the arguments for and against corporate diversification through acquisition? Which do you support and why?
1–10. What are the primary differences between operating and financial synergy? Give examples to illustrate your statements.
1–11. At a time when natural gas and oil prices were at record levels, oil and natural gas producer, Andarko Petroleum, announced on June 23, 2006, the acquisition of two competitors, Kerr-McGee Corp. and Western Gas Resources, for $16.4 billion and $4.7 billion in cash, respectively. These
1–12. On September 30, 2000, Mattel, a major toy manufacturer, virtually gave away The Learning Company, a maker of software for toys, to rid itself of a disastrous acquisition of a software publishing firm that actually had cost the firm hundreds of millions of dollars. Mattel, which had paid
1–14. On July 15, 2002, Pfizer, a leading pharmaceutical company, acquired drug maker Pharmacia for $60 billion. The purchase price represented a 34 percent premium to Pharmacia’s preannouncement price. Pfizer is betting that size is what matters in the new millennium. As the market leader,
1. Is this deal a merger or a consolidation from a legal standpoint? Explain your answer.
2. Is this a horizontal or vertical merger? What is the significance of this distinction from a regulatory perspective? Explain your answer.
3. What are the motives for the deal? Discuss the logic underlying each motive you identify.
4. Immediately following the announcement, P&G’s share price dropped by 2 percent and Gillette’s share price rose by 13 percent. Explain why this may have happened.
5. P&G announced that it would be buying back $18–22 billion of its stock over the 18 months following the closing of the transaction. Much of the cash required to repurchase these shares requires significant new borrowing by the new companies.Explain what P&G is trying to achieve in buying back
6. Explain how actions required by antitrust regulators may hurt P&G’s ability to realize anticipated synergy. Be specific.
7. Identify some of the obstacles that P&G and Gillette are likely to face in integrating the two businesses. Be specific. How would you overcome these obstacles?
1. How have technological and regulatory change affected competition in the telecommunications industry?
2. How have technological and regulatory change affected the rate of innovation and customer choice in the telecom industry?
3. The process of “creative destruction” stimulated substantial consolidation in the U.S. telecom industry. Is bigger always better? Why or why not? (Hint: Consider the impact on a firm’s operating efficiency, speed of decision making, creativity, ability to affect product and service
4. To determine the extent to which industry consolidation is likely to lead to higher, lower, or unchanged product selling prices, it is necessary to consider current competitors, potential competitors, the availability of substitutes, and customer pricing sensitivity. Explain why.
5. What factors motivated Verizon and SBC to acquire MCI and AT&T, respectively?Discuss these in terms of the motives for mergers and acquisitions described in Chapter 1 of the textbook.
2–1. What were the motivations for the Federal Securities Acts of 1933 and 1934?
2–2. What was the rationale for the Williams Act?
2–3. What factors do U.S. antitrust regulators consider before challenging a transaction?
2–4. What are the obligations of the acquirer and target firms according to the Williams Act?
2–5. Discuss the pros and cons of federal antitrust laws.
2–6. Why is premerger notification (HSR filing) required by U.S. antitrust regulatory authorities?
2–7. When is a person or firm required to submit a Schedule 13D to the SEC? What is the purpose of such a filing?
2–8. What is the rationale behind state antitakeover legislation?
2–9. Give examples of the types of actions that may be required by the parties to a proposed merger subject to a FTC consent decree.
2–10. How might the growth of the Internet affect the application of current antitrust laws?
2–11. Having received approval from the Justice Department and the Federal Trade Commission, Ameritech and SBC Communications received permission from the Federal Communications Commission to combine to form the nation’s largest local telephone company. The FCC gave its approval of the $74
2–14. Comment on whether antitrust policy can be used as an effective means of encouraging innovation. Explain your answer.
1. What key challenges face regulators resulting from the merger of financial exchanges in different countries? How do you see these challenges being resolved?
2. In what way are these regulatory issues similar or different from those confronting the SEC and state regulators and the European Union and individual country regulators?
3. Who should or could regulate global financial markets? Explain your answer.
4. In your opinion, would the merging of financial exchanges increase or decrease international financial stability?
1. What are the important philosophical differences between U.S. and EU antitrust regulators? Explain the logic underlying these differences. To what extent are these differences influenced by political rather than economic considerations?Explain your answer.
2. This is the first time that a foreign regulatory body prevented a deal involving only U.S. firms from occurring. What are the long-term implications, if any, of this precedent?
3. What were the major stumbling blocks between GE and the EU regulators? Why do you think these were stumbling blocks? Do you think the EU regulators were justified in their position?
4. Do you think that competitors are using antitrust to their advantage? Explain your answer.
5. Do you think the EU regulators would have taken a different position if the deal had involved a less visible firm than General Electric? Explain your answer.
3–1. What are the management entrenchment and shareholder interests hypotheses? Which seems more realistic in your judgment? Explain your answer.
3–3. What are proxy contests and how are they used?
3–4. What is a tender offer? How does it differ from open market purchases of stock?
3–5. How are target shareholders affected by a hostile takeover attempt?
3–6. How are the bidder’s shareholders affected by a hostile takeover attempt?
3–7. What are the primary advantages and disadvantages of commonly used takeover defenses?
3–10. How might recapitalization as a takeover defense help or hurt a target firm’s shareholders?
3–11. Anheuser-Busch rejected InBev’s all-cash offer price of $65 per share on June 30, 2008, saying it undervalued the company, despite the offer representing a 35 percent premium to AB’s preannouncement share price. InBev refused to raise its offer while repeating its strong preference for
3–12. What do you believe are the primary factors a target firm’s board should consider when evaluating a bid from a potential acquirer?

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Mergers Acquisitions And Other Restructuring Activities 5th Edition Donald DePamphilis - Solutions

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