1. Company A is considering a merger with Company B. A has 43,000 shares outstanding at a market price of $32 a share. B has 12,800 shares outstanding priced at $44 a share. The merger is expected to create $5,400 of synergy. What will be the total value of the merged firm?

A) $563,200

B) $1,933,800

C) $1,376,000

D) $1,944,600

E) $1,939,200

2. For some of the firms securities that can be viewed as options, which of the following is most likely to be true?

A) All else equal, the higher the companys leverage, the more valuable the companys equity as an option.

B) For convertible bond, the option to convert equals to the conversion value minus the value of the equivalent straight bond without the conversion option.

C) Owning a warrant is the same as selling a call option.

D) If the companys bond is considered risky, the companys equity can be viewed as a put option on the companys assets.

E) Projects that raise the firms asset volatility will automatically increase the value of the firms equity and risky debt.

3. The firm is considering either leasing or buying new $19,000 equipment. The lessor will charge $12,000 a year for a two-year lease. The equipment has a two-year life after which time it is expected to have a zero resale value. The firm uses straight-line depreciation, borrows money at 7% pre-tax, and has a tax rate of 21%. What is the net advantage to leasing?

A) $720

B) $167

C) $319

D) $720

E) $1254

4. Effective December 15th, 2018, the operating leases will be recorded:

A) as an asset and liability on the balance sheet of the lessee with a value equal to the estimated residual value of the leased asset. B) in the footnotes rather than on the balance sheet of the lessee.

C) on the balance sheet of the lessee with value equal to the present value of future lease payments.

D) only on the balance sheet and income statement of the lessor.

E) only on the income statement of the lessee as each lease payment is expensed.