Assume now that JP Morgan announces that it plans to acquire Ameritrade in a cash transaction....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Assume now that JP Morgan announces that it plans to acquire Ameritrade in a cash transaction. The stock prices of the two firms had the following reaction to the announcement: JP Morgan Ameritrade $65 $ 40 Stock Price before Stock Price after $63 Suppose that JP Morgan has 330 shares outstanding, while Ameritrade has 260 shares outstanding. Estimate the market's assessment of the value of synergy in this transaction on the announcement day. And assume that the acquisition was motivated by the potential cost savings from consolidating operations. If the cost of capital for both firms is 10% and the expected growth rate in the cost savings in perpetuity is 3%, estimate how much the costs savings would have to be next year to justify the synergy assessment mentioned earlier. (20 Marks) $45 Assume now that JP Morgan announces that it plans to acquire Ameritrade in a cash transaction. The stock prices of the two firms had the following reaction to the announcement: JP Morgan Ameritrade $65 $ 40 Stock Price before Stock Price after $63 Suppose that JP Morgan has 330 shares outstanding, while Ameritrade has 260 shares outstanding. Estimate the market's assessment of the value of synergy in this transaction on the announcement day. And assume that the acquisition was motivated by the potential cost savings from consolidating operations. If the cost of capital for both firms is 10% and the expected growth rate in the cost savings in perpetuity is 3%, estimate how much the costs savings would have to be next year to justify the synergy assessment mentioned earlier. (20 Marks) $45
Expert Answer:
Answer rating: 100% (QA)
We may compute the entire market value of JP Morgan and Ameritrade before and after the announcement ... View the full answer
Related Book For
An Introduction To Statistical Methods And Data Analysis
ISBN: 9781305465527
7th Edition
Authors: R. Lyman Ott, Micheal T. Longnecker
Posted Date:
Students also viewed these finance questions
-
Suppose in Figure 5.3 that the stock prices of target firms in acquisitions responded to acquisition announcements over a three-day period rather than almost instantly. a. Would you describe such an...
-
Suppose that JP Morgan Chase Bank in New York elects to borrow $250 million from Barclays Bank in London and loans the borrowed funds for a week to a security dealer, and then returns the borrowed...
-
A firm has 10 million shares outstanding with a market price of $20 per share. The firm has $25 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has...
-
verify that u= c ext cosx is a dimensional heat cqn. for. a soln. of suitable value of c. one
-
A load Q is applied to the pulley C, which can roll on the cable ACB. The pulley is held in the position shown by a second cable CAD, which passes over the pulley A and supports a load P. Knowing...
-
In a large hospital, a nursing director selected a random sample of 30 registered nurses and found that the mean of their ages was 30.2. The population standard deviation for the ages is 5.6. She...
-
The statements of financial position of Axis plc as at 31 December 2014 and 2015 and the income statement for the year ended 31 December 2015 were as follows: 1 During the year, plant (a non-current...
-
After several years of operations, the partnership of Leonard, Mitchell, and Swanson is to be liquidated. After making closing entries on June 30, 20--, the following accounts remain open: The...
-
Scenario: Child Care is a local non-profit organization solely managed by Mr. Mohammed. Before 10 years, his family contributed property and savings to establish this non-profit organization which...
-
Using the predictions made by the model on the "Prediction data (this year, active donors)" data set, if the Gabriel Hansen Foundation did not change its direct marketing strategy at all, and sent...
-
Question: 2 2 In the context of Operations Management, the term 'Lean Manufacturing' primarily focuses on: A ) Increasing the product size to maximize value. B ) Reducing waste and improving process...
-
Under Relevant Costing Discuss three qualitative factors that might be considered in making the decision to make or buy.
-
what is weighted average method and FIFO method in process costing? describe the steps that one needs to follow while preparing a process costing statement under the FIFO method and the Weighted...
-
What cost estimating technique would be indicated for the following situation?The program is later in the EMD phase and is going to have a MS C Decision in about a year.The esitmate is due several...
-
If a management accountant forgot to include a $20,000 rent expense payable in year 4 of a 9 year capital budgeting project, what would have been the impact on the net present value of the proposed...
-
How coca cola used process costing method in the company? Explain
-
1 pts Bonds of CoolCompany, Inc. pay 10 percent coupon, make semi-annual payments, and are priced at par. These bonds have 9 years to maturity. If interest rates suddenly rise by 2 percent, what is...
-
$10,000 was borrowed at 3.5% on July 17. The borrower repaid $5000 on August 12, and $2000 on September 18. What final payment is required on November 12 to fully repay the loan?
-
The following data are the resting pulse rates for 30 randomly selected individuals who were participants at a 10K race. a. Construct a stem-and-leaf plot of the pulse rates. b. Construct a boxplot...
-
It is conjectured that when fields are overgrazed by cattle there will be a substantial reduction in the available grass during the subsequent grazing season due to the compaction of the soil. A...
-
A psychologist is interested in studying women who are in the process of obtaining a divorce to determine whether the women experienced significant attitudinal changes after the divorce has been...
-
The partnership of Malle and Stine is considering three long-term capital in- vestment proposals. Relevant data on each project are as follows. Salvage value is expected to be zero at the end of each...
-
Wamser Service Center just purchased an automobile hoist for \($39,000\). The hoist has an 8-year life and an estimated salvage value of \($3,000\). Installation costs and freight charges were...
-
Sarah Kay is managing director of the City Day Care Center. City is currently set up as a lull-lime child care facility for children between the ages of 12 months and 6 years. Sarah Kay is trying to...
Study smarter with the SolutionInn App