Consider two firms, Zoe Corporation and Marley Company. Both corporations will either make $20,000 or lose $5,000 every year with equal probability. The firms' profits are perfectly negatively correlated. If the corporate tax rate is 21%, what are the total expected after-tax profits of both firms when they are two separate firms, assuming no tax-loss carryforwards or carrybacks? 

b)

Use the information for the question(s) below.

Martin Manufacturing has earnings per share (EPS) of $3.00, 5 million shares outstanding, and a share price of $32. Martin is considering buying Luther Industries, which has earnings per share of $2.50, 2 million shares outstanding, and a share price of $20. Martin will pay for Luther by issuing new shares. There are no expected synergies from the transaction.

If Martin pays no premium to acquire Luther, what will the earnings per share be after the merger? (4 marks)

c)Assume that Martin pays no premium to acquire Luther. Calculate Martin's price-earnings (P/E) ratio both pre- and post-merger.

d)KT corporation has announced plans to acquire MJ corporation. KT is trading for $45 per share and MJ is trading for $25 per share, with a premerger value for MJ of $3 billion . If the projected synergies from the merger are $750 million, what is the maximum exchange ratio that KT could offer in a stock swap and still generate a positive NPV?

e)Use the following information to answer the question(s) below.

You work for a leveraged buyout firm and are evaluating a potential buyout of Associated Steel. Associated Steel's stock price is $15 and it has 10 million shares outstanding. You believe that if you buy the company and replace its management, its value will increase by 50%. You are planning on doing a leveraged buyout of Associated Steel and will offer $20 per share for control of the company.

What will be the price of the non-tendered shares if you get 50% control of Associated Steel?

f)Outline three reasons why a company would adopt a poison pill.

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b To calculate the total expected aftertax profits of both firms we need to consider the probabilities of making a profit or incurring a loss and the corporate tax rate Given Zoe Corporation Profit of ... View the full answer