4. The financial manager of Firm BLACK is considering the possible purchase of Firm WHITE. The market value of Firm BLACK is 5,520m (2m shares traded on the stock exchange) before merger, while Firm White's market value is 560m (1.2m shares traded on the stock exchange) before merger. The manager would like to pay 840m to take over the Firm WHITE and expects that the market value of the combined firm would be worth 6,750m. 1) Suppose that Firm WHITE is bought for cash, calculate the cost and NPV of the merger from Firm BLACK's viewpoint. (3 marks) 2) If this merger is financed by stock, how many new shares Firm BLACK should issue and what is the exchange ratio? Calculate the share price of the merged firm? (6 marks) 3) Briefly outline three basic styles of merger. (4 marks) 4) Outline the major items when calculating the earnings dilution. (4 marks) 5) Briefly present the process to value a merger. (4 marks) 6) Discuss a tactic used in defending an unfriendly merger proposal. (4 marks) 3. Wolfson Inc. is considering to lease a new computer sever that costs 1,800. The machine will be depreciated on a MACRS schedule and will be worth nothing at the end of six years. Assume that the administrative costs are 150 per year paid by the leasing company from Year 0 to 6. The leasing payments are also made in advance for six years. The corporate tax rate is 35 percent and the cost of capital is 12 percent. The Depreciation Tax Shield based on Modified Accelerated Cost Recovery System (MACRS) Year 1 2 3 4 5 6 % 20 32 19.2 11.52 11.52 5.76 (a) How much should be the minimum lease amount to break-even? (12 marks) (b) Explain the main differences between direct leases and leveraged leases. (5 marks) (c) What is sale and lease-back and briefly explain the advantages of sale and lease-back. (5 marks) (d) Describe the main features of big-ticket leases. (3 marks) 5. In the end of 2000, Libby issued 5.5% convertible bonds due in 2010. Each bond was convertible into 1,500 shares of Libby Inc. equity any time before maturity. When Libby issued the convertible bonds, its share price is 25. The conversion price is 35. Suppose that straight bond issued by Libby was priced to yield 6.5% per months in the end of 2000. four 1) Calculate the current value of the straight bond. (4 marks) 2) Briefly explain the term of conversion ratio and calculate the conversion value of the bond. (3 marks) 3) Illustrate and explain the floor value of the convertible bond. (6 marks) 4) What are call options and warrants? Outline the major differences between warrants and call options. (6 marks)