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FINCE620 - Quiz - WEEK - 6 - EXCEL SOLUTION - INPUT YOUR FIGURES AND GET 100% CORRECT ANSWERS

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Question;1.;Penn;Corp. is analyzing the possible acquisition of Teller Company. Both firms;have no debt. Penn believes the acquisition will increase its total after tax;annual cash flow by $4 million indefinitely. The current market value of;Teller is $43 million, and that of Penn is $88 million. The appropriate;discount rate for the incremental cash flows is 10 percent. Penn is trying to;decide whether it should offer 40 percent of its stock or $69 million in cash;to Teller?s shareholders.;a.;What is the cost of;each alternative?(Do;not round intermediate calculations. Enter your answers in dollars, not;millions of dollars, i.e. 1,234,567.);Cash cost;$;Equity;cost;$;b.;What is the NPV of;each alternative?(Do;not round intermediate calculations. Enter your answers in dollars, not;millions of dollars, i.e. 1,234,567.);NPV cash;$;NPV stock;$;c.;Which alternative;should Penn choose?;Stock;Cash;2.;Plant;Inc., is considering making an offer to purchase Palmer Corp. Plant?s vice;president of finance has collected the following information;Plant;Palmer;Price-earnings;ratio;15.7;11.3;Shares;outstanding;1,620,000;870,000;Earnings;$;4,390,200;$;1,044,000;Dividends;$;1,062,000;$;482,000;Plant also knows that securities analysts expect the earnings;and dividends of Palmer to grow at a constant rate of 4 percent each year.;Plant management believes that the acquisition of Palmer will provide the;firm with some economies of scale that will increase this growth rate to 6;percent per year.;a.;What is the value of Palmer to Plant?(Do not round intermediate calculations and;round your final answer to 2 decimal places. (e.g., 32.16));Value of;Palmer;$;b.;What would Plant?s gain be from this acquisition?(Do not round intermediate calculations and;round your final answer to 2 decimal places. (e.g., 32.16));Gain;$;c.;If Plant were to offer $24 in cash for each share of Palmer;what would the NPV of the acquisition be?(Do not round intermediate calculations and round your;final answer to 2 decimal places. (e.g., 32.16));NPV;$;d.;What is the most Plant should be willing to pay in cash per;share for the stock of Palmer?(Do not round intermediate calculations and round your;final answer to 2 decimal places. (e.g., 32.16));Maximum;bid price;$;e.;If Plant were to offer 237,000 of its shares in exchange for;the outstanding stock of Palmer, what would the NPV be.(Do not round intermediate calculations and;round your final answer to 2 decimal places. (e.g., 32.16));NPV;$;Plant's outside financial consultants think that the 6 percent;growth rate is too optimistic and a 5 percent rate is more realistic.;f-1.;If Plant still offers $24 per share, what is the NPV with this;new growth rate?(Negative;amount should be indicated by a minus sign. Do not round intermediate;calculations and round your final answer to 2 decimal places. (e.g.;32.16));NPV;$;f-2.;If Plant still offers 237,000 shares, what is the NPV with;this new growth rate? (Do;not round intermediate calculations and round your final answer to 2;decimal places. (e.g., 32.16));NPV;$;f-3.;Should the;acquisition be attempted?;Yes;No;3.;Consider;the following premerger information about a bidding firm (Firm B);and a target firm (Firm T). Assume that both firms have no debt;outstanding.;Firm B;Firm T;Shares;outstanding;6,000;1,200;Price per;share;$;47;$;17;Firm B has;estimated that the value of the synergistic benefits from acquiring Firm T is;$9,500.;a.;If Firm T is;willing to be acquired for $19 per share in cash, what is the NPV of the;merger?(Do not round;intermediate calculations.);NPV;$;b.;What will the price;per share of the merged firm be assuming the conditions in (a)?(Do not round intermediate calculations and;round your final answer to 2 decimal places. (e.g., 32.16));Share;price;$;c.;If Firm T is;willing to be acquired for $19 per share in cash, what is the merger premium?(Do not round intermediate calculations.);Merger;premium;$;d.;Suppose Firm T is;agreeable to a merger by an exchange of stock. If B offers;one of its share for every two of T 's shares, what will the;price per share of the merged firm be?(Do not round intermediate calculations and round your final;answer to 2 decimal places. (e.g., 32.16));Price per;share;$;e.;What is the NPV of the;merger assuming the conditions in (d)? (Do not round intermediate calculations and round your;final answer to 2 decimal places. (e.g., 32.16));NPV;$;4.;Fair-to-Midland;Manufacturing, Inc., (FMM) has applied for a loan at True Credit Bank. Jon;Fulkerson, the credit analyst at the bank, has gathered the following;information from the company?s financial statements;Total;assets;$77,000;EBIT;7,000;Net;working capital;3,500;Book value;of equity;20,000;Accumulated;retained earnings;16,900;Sales;93,000;The stock price of FMM;is $22 per share and there are 5,100 shares outstanding. What is the Z-score;for this company?(Do;not round intermediate calculations and round your final answer to 3 decimal;places. (e.g., 32.161));Z-score;5.;Consider;the following premerger information about Firm A and Firm B;Firm A;Firm B;Total;earnings;$;2,100;$;800;Shares;outstanding;900;200;Price per;share;$;27;$;31;Assume that Firm A acquires;Firm B via an exchange of stock at a price of $33 for each;share of B's stock. Both A and B have;no debt outstanding.;a.;What will the earnings;per share, EPS, of Firm A be after the merger?(Do not round intermediate calculations and;round your final answer to 2 decimal places. (e.g., 32.16));EPS;$;b.;What will Firm A's;price per share be after the merger if the market incorrectly analyzes this;reported earnings growth (that is, the price?earnings ratio does not change)? (Do not round intermediate calculations;and round your final answer to 2 decimal places. (e.g., 32.16));Price per;share;$;c.;What will the;price?earnings ratio of the post-merger firm be if the market correctly;analyzes the transaction?(Do not round intermediate calculations and round your final;answer to 2 decimal places. (e.g., 32.16));Price-earnings;times;d-1.;If there are no;synergy gains, what will the share price of A be after the;merger? (Do not round;intermediate calculations and round your final answer to 2 decimal places.;(e.g., 32.16));Price per;share;$;d-2.;What will the;price?earnings ratio be?(Do not round intermediate calculations and round your final;answer to 2 decimal places. (e.g., 32.16));Price-earnings;times;d-3.;What does your answer;for the share price tell you about the amount A bid for B?;Was it too high? too low?;Too high;Too Low;Assume that the;following balance sheets are stated at book value. The fair market value of;James' fixed assets is equal to the book value. Jurion pays $19,000 for James;and raises the needed funds through an issue of long-term debt.;Jurion Co.;Current;assets;$;20,100;Current;liabilities;$;6,850;Net fixed;assets;36,850;Long-term;debt;11,260;Equity;38,840;Total;$;56,950;Total;$;56,950;James, Inc.;Current;assets;$;4,060;Current;liabilities;$;2,800;Net fixed;assets;9,880;Long-term;debt;1,820;Equity;9,320;Total;$;13,940;Total;$;13,940;Construct a postmerger;balance sheet assuming that Jurion Co. purchases James, Inc., and the;purchase method of accounting is used.(Do not round intermediate calculations.);Jurion Co., post-merger;Current;assets;$;Current;liabilities;$;Fixed;assets;Long-term;debt;Goodwill;Equity;Total;$;Total;$

 

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