Firm A is considering the acquisition of Firm B. For Firm A: PV = $10,000 and N = 1000. For Firm B, PV = $5,000 and N = 400. Firm A+B: PV = 20,973

Please show calculation:

a. Suppose the owners of B ask for a time 0 cash payment that will give them 40% of the GAIN. What would the time 0 cash payment be?

b. Suppose the owners of B ask for an exchange of common shares, and they want to have a 30% ownership in the merged firm? What would be the COST and the NPV? What exchange ratio are the B owners requesting?

c. Suppose A agrees to the split of the GAIN in part c, but only wants to give B a 20% ownership. How much time 0 cash must now be offered, with the 20% ownership, to achieve the same split as in part b?

d. Suppose A agrees to the split of the GAIN in part c, but wants to pay with bonds. Each bond will have a 5 year maturity, a coupon rate of 5%, and a maturity value of $1,000. The market would require a 10% return on the bonds. How many bonds would A have to give B?

Answer rating: 100% (QA)

a The owners of B would receive 40 of the gain which is 8973 20973 10000 Therefor... View the full answer