George's Equipment is planning on merging with Nelson Machinery. George's will pay Nelson's shareholders the current value of their stock in shares of George's Equipment. George's currently has 4,600 shares of stock outstanding at a market price of $31 a share. Nelson's has 1,600 shares outstanding at a price of $38 a share. What is the value per share of the merged firm?
Value per share = [(4,600 × $31) + (1,600 × $38)]/{[4,600 + (1,600 × $38)]/$31} = $31
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78.
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Pearl, Inc. has offered $920 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $710 million as an independent operation. For the merger to make economic sense for Pearl, what would the minimum estimated value of the synergistic benefits from the merger have to be?
Minimum economic value = $920 million - $710 million = $210 million
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79.
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Consider the following premerger information about Firm X and Firm Y:
Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $3 per share. Also assume that neither firm has any debt before or after the merger. What is the value of the total equity of the combined firm, XY, if the purchase method of accounting is used?
Assets from X = 26,000($26) = $676,000 (book value)
Assets from Y = 26,000($23) = $598,000 (market value) Goodwill = 26,000($23 + $3) - $598,000 = $78,000 Total Assets XY = Total equity XY = $676,000 + $598,000 + $78,000 = $1,352,000 |
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