Question20

Eventually, us Airlines decided on a script offer. According to the script offer US Airlines will offer to American Airways shareholders one share for every two shares they hold in American Airways. Calculate the net cost for US Airways and the NPV.

Question 21

What will the price of US Airlines be after the merger? Explain why its price will increase or decrease?

Question 22

An analyst suggested that the reason for the takeover is that American Airways shares were underpriced. Explain the reasoning behind her argument.

Question 23

Dr. Lim countered the analyst's argument and said that according to his calculation both firms are correctly priced.Assume that Dr.Lim is correct and suggest another possible motive (other than the synergy value) for the acquisition that is consistent with the data in the question

U The data below is related to the next five questions (question 19-23) US Airlines and American Airways are stock market listed companies in the US. Both firms are in the aviation industry, both operate only in North America, and both have been operating for over 50 years. Their stock market data is: US Airlines American Airways Number of shares 100m 50m Price per share $8 $3 Market capitalization $800m $150m Earnings $100m $75m EPS $1 $1.5 P/E ratio 8 2 US Airlines is considering a bid to buy American Airways. Dr. Lim, an expert in the aviation industry. estimated that the synergy gain for US Airlines will be $15m. U The data below is related to the next five questions (question 19-23) US Airlines and American Airways are stock market listed companies in the US. Both firms are in the aviation industry, both operate only in North America, and both have been operating for over 50 years. Their stock market data is: US Airlines American Airways Number of shares 100m 50m Price per share $8 $3 Market capitalization $800m $150m Earnings $100m $75m EPS $1 $1.5 P/E ratio 8 2 US Airlines is considering a bid to buy American Airways. Dr. Lim, an expert in the aviation industry. estimated that the synergy gain for US Airlines will be $15m