Reference no: EM131245620
Firm 1 and firm 2 are contemplating a merger in which firm 1 will acquire firm 2. The information in Table Q has been developed on the two firms. In the questions and answers related to this case, let subscripts 1 and 2 refer to the individual firms. Let ER, stand for the
exchange ratio from the standpoint of firm 1 and ER2 stand for the exchange ratio from the standpoint of firm 2. AER is the actual exchange ratio. PE12 will be the price/earnings ratio for the merged firm, after the merger.
a) The managements of the two firms are negotiating the terms of the merger, specifically the number of shares of firm 1 that will be exchanged for one share of common stock of firm 2. Three alternative criteria are under consideration:
i) The effect on each firms earnings per share after the merger.
ii) The expected market value of the merged firms common stock per one original share immediately after the merger. ]
iii) The expected market value of the holdings per one original share after synergistic effects have been developed, e.g., three years after the merger.
Of the three criteria, which would it be most rational for the management and shareholders of the firms to emphasize?
b) Using the estimates of the following range of postmerger PE12 values, determine the ER1 that will equate P1 to P12:
Range of possible PE12 values: 12, 15, 20, 25, 30. Make a graph on which ER1 is plotted against PE12 and label the curve ER1.
c) Calculate the ER2 that will equate P2 to P12 for the PE12 estimates given in part (b). Plot the curve ER2 on the graph begun in part (b).
d) At what PE12 do the two curves intersect? What is the significance of this point of intersection?
e) For the following combinations, calculate and graph the premium or loss to each firm:
Were the reasons strictly economic
: Were the reasons strictly economic? Comment ? Explain and comment on some of the major arguments or rationales, both economic and noneconomic, for planning in developing economies.
|
Plot the demand curve for the firm
: Determine the equilibrium price and quantity. Plot the demand curve for the firm. Plot the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.1P with the same prices.
|
Briefly summarize major conclusions of traditional theory
: Briefly summarize the major conclusions of the traditional theory of free trade with regard to its theoretical effects on world and domestic efficiency, world and domestic economic growth, world and domestic income distribution, and the pattern of..
|
Have you attended the symphony
: Have you ever participated in the arts? Are you a musician, an amateur actor? Have you ever studied dance? Painted a picture? How has the work of artists influenced you? Who is your favorite musician? Why? Have you attended the symphony? Have you..
|
Determine the er1 that will equate p1 to p12
: Using the estimates of the following range of postmerger PE12 values, determine the ER1 that will equate P1 to P12: - At what PE12 do the two curves intersect? What is the significance of this point of intersection?
|
Discuss the potential role of ngos
: http://www.transtutors.com/questions/discuss-the-potential-role-of-ngos-in-relation-to-the-government-and-private-sectors-1906031.htm
|
Discuss the components of the original washington consensus
: Discuss the components of the original Washington Consensus. What do you think was most lacking from this framework? What important factors have achieved widespread acceptance in the evolution toward a new consensus?
|
Explain in clear language the economic inefficiency
: Explain in clear language the economic inefficiency associated with adverse selection - Consider only people enrolled both before and after the implementation of the ACA. What does the theory of moral hazard tell is likely to happen to doctor visit..
|
What is the environmental kuznets curve
: In what cases does it seem implausible? How is climate change expected to impact countries in Latin America, Asia, and Africa? What policies in developed and developing countries may help address these problems?
|