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Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants




Question;1. Fly-By-Night Couriers is analyzing the possible;acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The;forecasts of Fly-By-Night show that the purchase would increase its annual;aftertax cash flow by $370,000 indefinitely. The current market value of;Flash-in-the-Pan is $9 million. The current market value of Fly-By-Night is $23;million. The appropriate discount rate for the incremental cash flows is 8;percent. Fly-By-Night is trying to decide whether it would offer 35 percent of;its stock or $13 million in cash to Flash-in-the-Pan.;a.;What is the synergy from the merger? (Do not round;intermediate calculations. Enter your answer in dollars, not millions of;dollars, i.e. 1,234,567.);Synergy value $;b.;What is the value of Flash-in-the-Pan to Fly-By-Night?;Value $;c.;What is the cost to Fly-By-Night of each alternative? (Do;not round intermediate calculations.;Cost of cash $;Cost of stock $;d.;What is the NPV to Fly-By-Night of each alternative? (Do not;round intermediate calculations.;NPV of cash $;NPV of stock $;e.;What alternative should Fly-By-Night use?;Stock offer;Cash offer;2.;Penn Corp. is analyzing the possible acquisition of Teller;Company. Both firms have no debt. Penn believes the acquisition will increase;its total aftertax annual cash flow by $2 million indefinitely. The current;market value of Teller is $51 million, and that of Penn is $76 million. The;appropriate discount rate for the incremental cash flows is 10 percent. Penn is;trying to decide whether it should offer 45 percent of its stock or $66 million;in cash to Teller?s shareholders.;a.;What is the cost of each alternative? (Do not round;intermediate calculations.;Cash cost $;Equity cost $;b.;What is the NPV of each alternative?;NPV cash $;NPV stock $;c.;Which alternative should Penn choose?;Cash;Stock;3. Assume that both firms have no debt outstanding.;Firm B Firm T;Shares outstanding 6,400 2,300;Price per share $ 48 $ 20;Firm B has estimated that the value of the synergistic;benefits from acquiring Firm T is $9,800. Firm T can be acquired for $22 per;share in cash or by exchange of stock wherein B offers one of its share for;every two of T's share.;Are the shareholders of Firm T better off with the cash;offer or the stock offer?;Share offer is better;Cash offer is better;At what exchange ratio of B shares to T shares would the;shareholders in T be indifferent between the two offers?;4. Fair-to-Midland Manufacturing, Inc., (FMM) has applied;for a loan at True Credit Bank. Jon Fulkerson, the credit analyst atthebank;has gathered the following information from the company?s financial statements;Totalassets $109,000;EBIT 8,600;Net working capital 5,100;Book value of equity 36,000;Accumulated retained earnings 18,500;Sales 109,000;The stock price of FMM is $38 per share and there are 6,700;shares outstanding. What is the Z-score for this company?;5.;Assume that the followingbalancesheets are stated at book;value.;Jurion Co.;Current assets $ 20,000 Current liabilities $ 5,300;Net fixed assets 33,200 Long-term debt 9,500;Equity 38,400;Total $ 53,200 Total $ 53,200;James, Inc.;Current assets $ 3,900 Current liabilities $ 2,300;Net fixed assets 9,100 Long-term debt 1,600;Equity 9,100;Total $ 13,000 Total $ 13,000;Suppose the fair market value of James's fixed assets is;$15,200 versus the $9,100 book value shown. Jurion pays $24,000 for James and;raises the needed funds through an issue of long-term debt. Construct the;postmerger balance sheet assuming that the purchase method of accounting is;used. (Do not round intermediate calculations.);Jurion Co., post-merger;Current assets $;Current liabilities $;Fixed assets Long-term;debt;Goodwill Equity;Total $ Total $;6. Bentley Corp. and Rolls Manufacturing are considering a;merger. The possible states of the economy and each company?s value in that;state are shown here;State Probability Bentley Rolls;Boom.70 $ 330,000 $ 300,000;Recession.30 $ 130,000 $ 100,000;Bentley currently has a bond issue outstanding with a face;value of $145,000. Rolls is an all-equity company.;a.;What is the value of each company before the merger? (Do not;round intermediate calculations.);Value of Bentley $;Value of Rolls $;b.;What are the values of each company?s debt and equity before;the merger? (Leave no cells blank - be certain to enter "0" wherever;required.;Equity of Rolls $


Paper#47538 | Written in 18-Jul-2015

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