Efficient Technologies (ET) and Reliable Machineries (RM) both are manufacturers of small motors. For ET, variable cost
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Question:
For "ET", variable cost per unit to produce each motor is $1,500 and total fixed cost is $1,500,000. It has a total capacity of 5,000 units per year and is currently operating at 80% of capacity. The selling price per unit is $2,700.
For "RM", a less efficient company, variable cost per unit to produce each motor is $1,800 and total fixed cost is $1,000,000. It has a total capacity of 3,500 units per year and is currently operating at 75% of capacity. Its selling price per unit is $2,600. ET is thinking of making an offer for RM because of anticipated synergies.
If an offer is made, then average variable cost for the resulting company (ET-RM) is expected to be $1,550 and total fixed cost is reduced to $2,200,000. Sales in units will be the combined capacities ( maximum production ) and selling price will be $2,550 per unit. ET will not accept anything less than 15% return on its offer.
Q1The total profit ( ET and RM ) before the merger is?
Q2Given that the new company ( ET - RM ) will operate indefinitely, then the synergy accrued to the bidder ( ET ) as a result of this M&A is?
Q3If the combined company ( ET - RM ) only operates for 12 years, then the synergy will be?
Related Book For
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
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