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

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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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