Consider the following pre-merger information about a bidding firm (firm B) and a target firm (firm T).

Question:

Consider the following pre-merger information about a bidding firm (firm B) and a target firm (firm T). Assume that both firms have no debt outstanding.

image text in transcribed

Firm B has estimated that the value of the synergistic benefits from acquiring firm T is £3,000.

(a) If firm T is willing to be acquired for £27 per share in cash, what is the NPV of the merger?

(b) What will the price per share of the merged firm be assuming the conditions in (a)?

(c) In part (a), what is the merger premium?

(d) Suppose firm T is agreeable to a merger by an exchange of equity. If B offers three of its shares for every one of T’s shares, what will the price per share of the merged firm be?

(e) What is the NPV of the merger assuming the conditions in (d)?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Corporate Finance

ISBN: 9780077173630

3rd Edition

Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe

Question Posted: