1- Gillison Markets is being acquired by Bakersfield Ltd. for $129,000 worth of Bakersfield Ltd. stock. Bakersfield Ltd. has 7,500 shares of stock outstanding at a price of $54 a share. Gillison Markets has 1,500 shares outstanding with a market value of $27 a share. The incremental value of the acquisition is $3,700. How many new shares of stock will be issued to complete acquisition?

2- Palace Inns is acquiring Sequoia for $38,000 in cash. Palace Inns has 1,500 shares of stock outstanding at a market price of $26 a share. Sequoia has 1,800 shares of stock outstanding at a market price of $18 a share. Neither firm has any debt. The net present value of the acquisition is $1,400. What is the price per share of Palace Inns after the acquisition?

3-Alex, Inc. is financed 100% with equity. The firm has 100,000 shares of stock outstanding with a market price of $5 per share. Total earnings for the most recent year are $50,000. The firm has cash of $25,000 in excess of what is necessary to fund its positive NPV projects. The firm is considering using the cash to pay an extra dividend of $25,000 or, alternatively, to repurchase $25,000 of stock. The firm has other assets worth $475,000 (market value). For each of the questions that follow, assume there are no transaction costs, taxes, or other market imperfections. Assume the firm pays the $25,000 excess cash in the form of a cash dividend. What will be the market price per share of Alex's stock once the dividend is paid?

4- Parker & Thomas, Inc., (P&T) currently is an all equity firm with 20,000 shares of stock outstanding at a market price of $40 a share. The company's earnings before interest and taxes are $50,000. The firm's dividend payout ratio is 100%. P&T has decided to add leverage to its financial operations by issuing $400,000 of debt at a 9% interest rate. This $400,000 will be used to repurchase shares of stock. You own 2,500 shares of P&T stock. You lend funds at a 9% rate of interest. How many of your shares of stock in P&T must you sell to offset the leverage that the firm is assuming? Assume that you loan out all of the funds you receive from the sale of your stock.

5-Suppose you have the following information concerning an acquiring firm (A) and a target firm (B). Neither firm has any debt. The incremental value of the acquisition is estimated to be $250,000. Firm B is willing to be acquired for $540,000 worth of Firm A's stock. Number of Shares Firm A 50,000 Firm B 18,000. Price per Share: Firm A $50.00 Firm B$22.50

What is the price per share of the existing firm after the acquisition is completed?

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