7. Interest Rates and Arbitrage [LO2] The treasurer of a major U.S. firm has $30 million to invest for three months. The interest rate in the United States is .31 percent per month. The interest rate in Great Britain is .34 percent per month. The spot exchange rate is .573, and the three-month forward rate is .575. Ignoring transaction costs, in which country would the treasurer want to invest the companys funds? Why?

Ch. 26: Questions 1 & 2 (Questions and Problems section): Microsoft Excel template provided for Problem 2

1. Calculating Synergy [LO3] Pearl, Inc., has offered $357 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $319 million as an independent operation. If the merger makes economic sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger?

2. Balance Sheets for Mergers [LO2] Consider the following premerger information about Firm X and Firm Y: Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $6 per share. Assuming that neither firm has any debt before or after the merger, construct the postmerger balance sheet for Firm X assuming the use of purchase accounting.

Firm XFirm Y

Total earning $87,000 $11,000

Shares outstanding 35,000 12,000

per share values:

market$ 57 $ 19

book $ 7 $3