please kindly help with questions 1 - 4. Thanks.

CHAPTER 29 Mergers, Acquisitions, and Divestures 92 THE BIRDIE GOLF-HYBRID GOLF MERGER Birdie Golf, Inc. has been in merger talks with Hvbrid Golf Company for the past six for Hybrid Golf. Both facturing and marketing, as well as significant savings in general and administrative rounds of negotiations, the offer under disussion is a cash offer of S352 million companics have niche markets in the golf club industry, and the com- neve a merger will result in significant synergies due to economies of scale in manu- Bryce Bichon, the financial officer for Birdie, has been instrumental in tiations. Bryce has prepared the following pro forma financial assuming the merger takes place. The financial statements include all synergistic benefits from the merger for Hybrid Golf 2015 2016 2017 2018 2019 Sales 512.000,000 $576.000,000 $640,000.000 $720,000,000 $800.000.000 Production costs 359,200.000 403.200,000 448.000.000 505.600,000 564.000.000 48,000.000 51,200.000 5.800,000 53.120.000 53.600,000 Other expenses 51,200,000 57.600.000 64000.000 72 320.000 77,600.000 53,600,000 6000.000 75200,00088.960,000 $104,800,000 12.160.000 14,080.000 15.360,000 16.000.000 17.280.000 Taxable income 41.440,000 349,920,000 59 840,000 72 960,000 87 520000 6.576,000 19,968.000 23.936,000 29,184,000 35,008,000 5 24.864.000 29952000 35904.000 43.776.000 52 512.000 EBIT Interest Taxes (40%) Net income Bryce is also aware that the Hybrid Golf division will require investments each year for con- tinuing operations, along with sources of financing. The following table outlines the required investments and sources of financing: 2015 2016 2017 2018 2019 Investments: Net working capital $12.800.000 $16.000,000 $16.000.000 $19,200.000 $19,200.000 Fixed assets Total Sources of financing New debt Profit retention Total 9.600.000 16000,000 11520.000 76.800.000 4490.000 $22.400.000 $32000.000 $27.520,000 96.000.000 $23.680,000 $22,400,000 $10.240.000 $10,240000 $9,600.000 $ 7.680.000 21760.00217.280.00017.280,000 16000.000 $22.400.000 $32.000,000 $27.520,000 $26.880,000 $23.680.000 The management of Birdie Golf feels that the capital structure at Hybrid Golf is not optimal. If the merger takes place, Hybrid Golf will immediately increase its leverage with a S71 million debt issue, which would be followed by a $96 million dividend payment to Birdie Golf. This will increase Hybrid's debt-to-equity ratio from 50 to 1.00. Birdie Golf will also be able to use a S16 million tax loss carryforward in 2016 and 2017 from Hybrid Golf's previous operations. The total value of Hybrid Golf is expected to be $576 million in five years, and the will have S192 million in debt at that time. Stock in Birdie Golf currently sells for $94 per share, and the company has 11.6 million shares of stock outstanding. Hybrid Golf has 5.2 million shares of stock outstanding. Both companies can borrow at an 8 percent interest rate. The risk-free rate is 6 percent, and the expected return on the market is 13 percent. Bryce believes the current cost of capital for Birdie Golf is 11 percent. The beta for Hybrid Golf stock at its current capital structure is 1.30. Bryce has asked you to analyze the financial aspects of the potential merger. Specifically, he has asked you to answer the following questions: 1. Suppose Hybrid shareholders will agree to a merger price of $68.75 per share. Should Birdie proceed with the merger? 2. What is the highest price per share that Birdie should be willing to pay for Hybrid? 3. Suppose Birdie is unwilling to pay cash for the merger but will consider a stock exchange. What exchange ratio would make the merger terms equivalent to the original merger price of $68.75 per share? 4. What is the highest exchange ratio Birdie would be willing to pay and still undertake the merger? CHAPTER 29 Mergers, Acquisitions, and Divestures 92 THE BIRDIE GOLF-HYBRID GOLF MERGER Birdie Golf, Inc. has been in merger talks with Hvbrid Golf Company for the past six for Hybrid Golf. Both facturing and marketing, as well as significant savings in general and administrative rounds of negotiations, the offer under disussion is a cash offer of S352 million companics have niche markets in the golf club industry, and the com- neve a merger will result in significant synergies due to economies of scale in manu- Bryce Bichon, the financial officer for Birdie, has been instrumental in tiations. Bryce has prepared the following pro forma financial assuming the merger takes place. The financial statements include all synergistic benefits from the merger for Hybrid Golf 2015 2016 2017 2018 2019 Sales 512.000,000 $576.000,000 $640,000.000 $720,000,000 $800.000.000 Production costs 359,200.000 403.200,000 448.000.000 505.600,000 564.000.000 48,000.000 51,200.000 5.800,000 53.120.000 53.600,000 Other expenses 51,200,000 57.600.000 64000.000 72 320.000 77,600.000 53,600,000 6000.000 75200,00088.960,000 $104,800,000 12.160.000 14,080.000 15.360,000 16.000.000 17.280.000 Taxable income 41.440,000 349,920,000 59 840,000 72 960,000 87 520000 6.576,000 19,968.000 23.936,000 29,184,000 35,008,000 5 24.864.000 29952000 35904.000 43.776.000 52 512.000 EBIT Interest Taxes (40%) Net income Bryce is also aware that the Hybrid Golf division will require investments each year for con- tinuing operations, along with sources of financing. The following table outlines the required investments and sources of financing: 2015 2016 2017 2018 2019 Investments: Net working capital $12.800.000 $16.000,000 $16.000.000 $19,200.000 $19,200.000 Fixed assets Total Sources of financing New debt Profit retention Total 9.600.000 16000,000 11520.000 76.800.000 4490.000 $22.400.000 $32000.000 $27.520,000 96.000.000 $23.680,000 $22,400,000 $10.240.000 $10,240000 $9,600.000 $ 7.680.000 21760.00217.280.00017.280,000 16000.000 $22.400.000 $32.000,000 $27.520,000 $26.880,000 $23.680.000 The management of Birdie Golf feels that the capital structure at Hybrid Golf is not optimal. If the merger takes place, Hybrid Golf will immediately increase its leverage with a S71 million debt issue, which would be followed by a $96 million dividend payment to Birdie Golf. This will increase Hybrid's debt-to-equity ratio from 50 to 1.00. Birdie Golf will also be able to use a S16 million tax loss carryforward in 2016 and 2017 from Hybrid Golf's previous operations. The total value of Hybrid Golf is expected to be $576 million in five years, and the will have S192 million in debt at that time. Stock in Birdie Golf currently sells for $94 per share, and the company has 11.6 million shares of stock outstanding. Hybrid Golf has 5.2 million shares of stock outstanding. Both companies can borrow at an 8 percent interest rate. The risk-free rate is 6 percent, and the expected return on the market is 13 percent. Bryce believes the current cost of capital for Birdie Golf is 11 percent. The beta for Hybrid Golf stock at its current capital structure is 1.30. Bryce has asked you to analyze the financial aspects of the potential merger. Specifically, he has asked you to answer the following questions: 1. Suppose Hybrid shareholders will agree to a merger price of $68.75 per share. Should Birdie proceed with the merger? 2. What is the highest price per share that Birdie should be willing to pay for Hybrid? 3. Suppose Birdie is unwilling to pay cash for the merger but will consider a stock exchange. What exchange ratio would make the merger terms equivalent to the original merger price of $68.75 per share? 4. What is the highest exchange ratio Birdie would be willing to pay and still undertake the merger