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NY Corporation has 4,000,000 shares outstanding which is selling at

NY Corporation has 4,000,000 shares outstanding which is selling at $45 per share. It intends to acquire

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NY Corporation has 4,000,000 shares outstanding which is selling at $45 per share. It intends to acquire e-Build Corporation which has 2,500,000 shares outstanding, selling at $10 a share. NY Corporation estimates the economic gain from the merger to be $15,000,000.

(i) Calculate the possible selling price of NY Corporation when the market learns that it plans to acquire e-Build Corporation for $15 a share. Moreover, calculate the percentage gains to the shareholders of NY Corporation.

(ii) Suppose that the merger takes place through an exchange of stock. Based on the premerger prices of the firms, instead of paying $15 cash, NY Corporation issues 0.30 of its shares for every e-Build Corporation share acquired. Calculate the price of the merged firm.

(iii) To utilize the operating losses of the target firm is the economic justification and to reduce the price-to-earnings ratio is the financial justification for takeovers. Critically discuss each of them.

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1 total market value of e build corporations 40000000 Ga... View the full answer

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Principles of Taxation for Business and Investment Planning 2016 Edition

ISBN: 9781259549250

19th edition

Authors: Sally Jones, Shelley Rhoades Catanach

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Posted Date: Jun 21, 2020 05:26 AM

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